13 May

RESIDENTIAL MARKET UPDATE

General

Posted by: Adriaan Driessen

Industry & Market Highlights

CMHC: Housing market is no longer “highly” vulnerable
Canada’s housing market has been rated as “highly vulnerable” for 10 consecutive quarters but the risk is easing.
The latest quarterly assessment from the CMHC says improved conditions – mostly easing price acceleration – have reduced the vulnerability to moderate.
“Even though moderate evidence of overvaluation continues for Canada as a whole, there has been improved alignment overall between house prices and housing market fundamentals in 2018 in comparison to the previous year,” said Bob Dugan, Chief Economist, Canada Mortgage and Housing Corporation.
Regional risk varies
But while the national picture appears rosier, some local markets still pose a risk.
Vancouver, Victoria, Toronto, and Hamilton are still considered highly vulnerable even as prices ease back to levels that CMHC believes can be supported by housing market fundamentals including population, personal disposable income and interest rates.
Vancouver’s evidence of overvaluation has reduced from high to moderate and evidence of overheating is also lower. Toronto’s overvaluation evidence is also now moderate rather than high.
There is evidence of a moderate degree of vulnerability in Edmonton, Calgary, Saskatoon, Regina and Winnipeg, mainly due to continued evidence of overbuilding.
Montreal and Moncton are showing evidence of overheating as the markets tighten.
Ottawa, Montréal, Québec City, Moncton, Halifax and St. John’s all have low degrees of vulnerability.
The report is based on data as of the end of December 2018 and market intelligence up to the end of March 2019.  By Steve Randall. 
Bank of Canada pulls up a seat on the sidelines  
As expected the Bank of Canada has, once again, moved to the sidelines when it comes to interest rate policy.  This time, though, the bankers appear to have unfolded their lawn chairs, taken a seat and put their feet up; settling-in for an extended period of inactivity.
The central bank’s benchmark policy rate was left unchanged at 1.75% during last week’s setting.  More significantly, the Bank made a small change in wording to its Monetary Policy Report that sends a big message.  It eliminated references to the need for future interest rate hikes, signalling it has shifted to a wait-and-see status.  Many market watchers do not expect any rate increases (or decreases) until early 2020.
So what would it take for the Bank of Canada to get back in the game?  It would have been something drastic, like a sudden jump in inflation or a rapid drop in employment.
Right now, though, the Bank finds itself somewhat boxed-in.  Inflation is showing some signs of increasing, but not enough to justify interest rate intervention.  Canadian household debt is climbing back into record territory and higher rates would only compound that problem. 
The BoC has to pay attention to what the U.S. Federal Reserve is doing, and right now there is little political appetite for rate increases in the United States.  As well, the election cycle is heating up in both the U.S. and Canada and central banks are loath to make any moves that could be seen as giving advantage to any side in an election campaign.  By First National Financial. 
Residential Market Commentary – The Fed holds firm
Market watchers have received one of the strongest signals yet that interest rates are not going anywhere, anytime soon.
The U.S. Federal Reserve has held the line on its trend-setting policy rate, maintaining it in the range of 2.25% to 2.50%.  The central bank also made it clear (or, at least, as clear as central banks ever do) that it will not be moving rates given the current state of the American economy.
Unlike Canada, the main sticking point in the United States is inflation.  Here the economy is experiencing weak growth.  The Bank of Canada blames that on low oil prices and business investment that is being constricted by global trade uncertainties.  In the U.S. the economy has shaken off the doldrums that set in at the end of last year.  GDP grew by 3.2% in the first quarter this year and unemployment is a record lows.  But inflation is running at just 1.5%.  The Fed’s target is 2.0%.
Weak inflation is seen as a problem because it tends to suppress consumer spending, which is the main driver of the American economy.  By First National Financial.
Poloz Says Mortgage Market Should Offer More Options 
In a speech early this week, Bank of Canada Governor Stephen Poloz said that it is time for some fresh ideas for Canada’s mortgage market. He suggested that changes could include encouraging longer than 5-year duration fixed-rate mortgage loans, the creation of a market for private mortgage-backed securities and the launch of shared-equity mortgages for first-time homebuyers proposed in the March federal budget.
Taking these in turn, only two percent of all fixed-rate loans issued in 2018 had durations longer than five years. For borrowers, this would mean less interest-rate risk if they dealt with fewer renewals; however, this is not the full story.
Firstly, 65% of all 5-year mortgage holders break their mortgage by around month 33. Also, some banks and many mortgage brokers offer fixed-rate loans with durations of 7, 8, or even 10 years. However, the borrower pays dearly for this insurance against rising rates. Since the introduction of mortgage stress tests, many borrowers have trouble qualifying for loans as it is. Most want lower, rather than higher, monthly payments and demand for longer-duration mortgages is so low because they cost a full 100 basis points or more above existing 5-year mortgage loans. Besides, interest rates have been low and even falling over most of the period since 1982. Fear of significant rate spikes has diminished dramatically.
Poloz agrees there is some momentum in Canada towards the creation of a private market for mortgage-backed securities. He said it would provide a more flexible source of long-term funds for mortgages not insured by CMHC. To the extent that enhanced sources of capital would reduce the cost of funding for lenders, it might reduce the rate spread between 5-year and longer-duration mortgages, making them more attractive. But, again, perceived rate risk and the actual less than 5-year duration of most mortgages begs the question of why Poloz is providing an answer to a question no one is asking.
Indeed, data show that Millennials in Canada are buying homes in Canada’s most expensive cities. Royal Bank economists found that “apart from a short-lived slowdown in 2015 resulting from changes in the temporary foreign worker program, the population aged 20-to-34 in Vancouver, Toronto and Montreal has grown solidly over the last dozen years. …The inflow of millennial immigrants is poised to grow in the coming years. Canada will increase its annual immigration target from 330,000 in 2019 to 350,000 in 2021, and our largest cities will likely get the lion’s share of newcomers. In recent years, Vancouver, Toronto and Montreal together welcomed approximately half of all new immigrants aged 20-34.”
Finally, the shared-equity mortgage for first-time homebuyers may well prove to be unpopular. A similar program was offered in British Columbia a few years ago, and there were very few takers.
The BC Home Owner Mortgage and Equity Partnership program, introduced in late 2016, was cancelled effective March 31, 2018, due to lack of interest. The province anticipated that the program would provide 42,000 loans over three years. However, as of January 31, 2018, there were fewer than 3,000 loans approved.
The new federal program will provide a larger downpayment for first-time buyers, but it only applies to homes priced just over $500,000 or less, which might help in some parts of the country, but in higher-cost regions homes that cheap are slim pickings.
Canadians don’t want to share the equity gains in their homes, as most first-time buyers don’t imagine that their home equity could decline. Governor Poloz, himself, forecast in the same speech that he’s confident Canada’s housing market will return to growth later this year. Population and job growth has been rapid pointing to the resumption of growth in depressed housing markets later this year.
Poloz is a champion of the B-20 guidelines, saying they have done what they were intended to do–remove the froth from bubbly housing markets. During the press conference following his speech, reporters asked if the governor would support a reduction in the roughly 200 basis point spread between the qualifying rate and the contract rate to which he responded in essence– a resounding, no.  By Dr. Sherry Cooper.  Chief Economist, Dominion Lending Centres
This is how much you need to make to buy the average home in Toronto: report
According to new data from Zoocasa, buying a house in Toronto is only accessible to those within the top 10% income group, as the city’s houses have a benchmark price of $873,100.
Toronto is the second-priciest Canadian city to dwell on the list. Vancouver buyers must be within the top 2.5% tier to buy a home, with the city’s benchmark of $1,441,000, sourced from the Canadian Real Estate Association and local real estate boards.
The study calculated the minimum income required to qualify for a mortgage in the above 13 census metropolitan areas (CMAs) across Canada. The calculations assume a 20% down payment, 3.75% mortgage rate, and 30-year amortization.
Findings were then cross referenced with income tax filings as reported by Statistics Canada to determine which income group buyers must align with in order to be able to purchase.
Findings show that it’s not just home-prices that call for buyers to be in such spaces of income. Similar requirements apply for apartments and condos, too.
According to the study, those in Vancouver and Toronto must still have an income within the top 25% to swing respective prices of $656,900 and $522,300.
On the flip-side, the study highlighted the most affordable place in Canada to buy a home: The Prairies.
It’s noted that for those within the top 75% income group in Regina, affording a home is feasible with a benchmark property costs $275,900. Saskatoon and Winnipeg are both close behind; incomes in the top 50% can afford homes priced at $301,900 and $326,433, respectively.
And even apartment purchasers can enjoy greater affordability in those places, with units accessible to the top 75% income group at respective benchmark prices of $160,200, $170,800, and 227,538.
So on top of quitting your avocado toast habit, there’s something else to consider: moving to Regina.  By Kayla Gladysz.
Economic Highlights

 

BOC: “Canadian housing sector should return to growth” this year  
The Bank of Canada’s decision to freeze interest rates at 1.75% was no great surprise but the Monetary Policy Report was a welcome insight into how the BoC sees the state of the economy.
Noting the recent slowdown in the economy, Governor Stephen Poloz said that the bank’s Governing Council believe that it will prove to be temporary and that the global economy will adjust to current challenges including trade conflicts.
He spoke of the continued issues for the oil sector which in turn impacts housing in those markets that are more dependent on the sector.
However, for both oil industries and other exporters who would be affected if CUSMA was not ratified, the Governor said that weakness in the first part of 2019 is expected to give way to growth as the year progresses.
For housing markets, the BoC acknowledged that previously frothy markets including the Greater Toronto and Greater Vancouver areas have seen “significant revision” in price expectations.
But Stephen Poloz also pointed to other markets such as Halifax, Montreal, Ottawa, and Winnipeg which have seen the “solid activity” that would be expected in a growing economy with rising population and job creation.
He also highlighted the reduction in mortgage rates driven by lower global bond yields.
All things considered, the BoC expects the Canadian housing sector to “return to growth overall later this year.”  By Steve Randall. 
The Deadline Passes And Trump Brings Down The Tariff Hammer – China Immediately Promises To Retaliate
At 12:01 AM eastern time on Friday, President Trump followed through on his threats and hit China with a massive tariff increase.  As you will see below, China immediately pledged to retaliate.  U.S. and Chinese officials will continue to negotiate throughout the day on Friday, but if U.S. officials were optimistic that a deal was imminent the trigger never would have been pulled on these tariffs.  At this point the gap between the negotiating positions of the two sides is still enormous, and that does not seem likely to change.  The Chinese have been taking advantage of the United States for decades, and they wish to continue doing so.  Meanwhile, President Trump and his advisers are absolutely determined to level the playing field.  Unless one of the parties backs down in a major way, there is not going to be a trade agreement and this trade war is about to get very real, and that is extremely bad news for the global economy.
Just minutes ago, the deadline that the whole world was watching passed, and as expected Trump’s tariffs were imposed.  The following comes from Bloomberg
The U.S. hiked tariffs on more than $200 billion in goods from China on Friday in the most dramatic step yet of Donald Trump’s push to extract trade concessions, deepening a conflict that has roiled financial markets and cast a shadow over the global economy.
China immediately said in a statement it is forced to retaliate, but didn’t specify how.
On Thursday evening, global markets were tentatively hopeful as U.S. and Chinese officials met to negotiate.  According to White House Deputy Press Secretary Judd Deere, negotiations will continue in the morning
“This evening, (United States Trade Representative Robert Lighthizer) and (Treasury Secretary Steven Mnuchin) met with President Trump to discuss the ongoing trade negotiations with China. The Ambassador and Secretary then had a working dinner with Vice Premier Liu He, and agreed to continue discussions tomorrow morning at USTR,” Judd Deere, White House Deputy Press Secretary, said in a Thursday evening statement.
But the negotiations did not go well enough to even delay the implementation of the tariffs.
Trump followed through on what he promised he would do, and the Chinese say that they have “already prepared a response for all kinds of outcomes”
At the same time the Chinese side has already prepared a response for all kinds of outcomes, Gao Feng, commerce ministry spokesperson, said in Mandarin, according to a CNBC translation. He was speaking at Thursday’s weekly press conference.
It is likely that the Chinese did not immediately respond with new tariffs of their own because they would like to see how negotiations go on Friday.
In the end, the Chinese would love to get Trump to put a hold on tariffs yet again without giving him the trade agreement that he desperately wants.  Throughout this process, the Chinese tactic has been to delay, delay, delay and they will undoubtedly do their best to try to kick the can down the road once again.
But Trump has figured out that they have been trying to run out the clock on his administration, and this time he is putting his foot down.
And without a doubt, it is definitely good to see a presidential administration finally standing up to the Chinese.  They have been ruthlessly taking advantage of us and ripping us off blind for years, and that must stop.
Here is just one example of this that Trump often likes to share
“When a car is sent to the United States from China, there is a Tariff to be paid of 2 1/2%. When a car is sent to China from the United States, there is a Tariff to be paid of 25%,” Trump tweeted April 9. “Does that sound like free or fair trade. No, it sounds like STUPID TRADE –  going on for years!”
Of course Trump is exactly correct.  It is not “free trade” and it is definitely not “fair trade”.  If they want to impose 25 percent tariffs on our auto industry, they should expect the same treatment for their key industries in return.
All along, Trump has insisted that if China wants to remove all their tariffs that we would be willing to do the same thing, but the Chinese would never agree to do that.
So Trump is standing up to China, and that is a good thing.
Unfortunately, upsetting the status quo will also be exceedingly painful.
A full-blown trade war with China will be really, really bad for the global economy.  If Trump understood how bad things could potentially get, he probably never would have gone down this road, because it is going to be exceedingly difficult to get re-elected if the economy tanks.
I think that a little review of what happened during our last trade war will help us get a little perspective on what could be ahead.
On June 17th, 1930 President Hoover signed the Smoot-Hawley Act which imposed tariffs on more than 20,000 imported goods.
This coincided with the worst economic downturn of the 20th century.  U.S. GDP declined 8.5 percent in 1930, 6.4 percent in 1931 and 12.9 percent in 1932.
On June 12th, 1934 President Roosevelt signed the Reciprocal Tariff Act which essentially ended the trade war.
So what happened?
The U.S. economy grew 10.8 percent in 1934, 8.9 percent in 1935 and 12.9 percent in 1936.
Today, the global economy is far more interconnected than it was in the 1930s, and so the impact of a global trade war could potentially be much greater.
We need trade with China to be fair and balanced, but are we willing to go through an extraordinary amount of economic pain to get to that end result?
And once relations with China break down, will they ever be able to be repaired?
We are at a critical turning point in U.S. history, and nobody is going to be able to turn back time once the dominoes begin to fall.
In the end, we are all going to have to live with the decisions that the Trump administration is making right now, and so let us hope that wisdom prevails.   By Michael Snyder.
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Mortgage Interest Rates
Prime lending rate is 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates are holding steady.  Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages somewhat attractive, but still not significant enough spread between the fixed and variable to justify the risk for most.
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Other Industry News & Insights
Roundup of the latest mortgage and housing news. 
From Mortgage Professionals Canada. 

There is never a better time than now for a free mortgage check-up.  It makes sense to revisit your mortgage and ensure it still meets your needs and performs optimally.  Perhaps you’ve been thinking about refinancing to consolidate debt, purchasing a rental or vacation property, or simply want to know you have the best deal?  Whatever your needs, we can evaluate your situation and help you determine what’s the right and best mortgage for you.
24 Apr

Residential Market Update

General

Posted by: Adriaan Driessen

Industry & Market Highlights 

Rate hike disappears over the horizon

The likelihood of a Bank of Canada interest rate increase appears to be getting pushed further and further beyond the horizon.

The Bank is expected to remain on the sidelines again this week when it makes its scheduled rate announcement on Wednesday.

A recent survey by Reuters suggests economists have had a significant change of heart about the Bank’s plans.  Just last month forecasters were calling for quarter-point increase in the third quarter with another hike next year.  Now the betting is for no change until early 2020.  There is virtually no expectation there will any rate cut before the end of next year.

The findings put the Bank of Canada in line with the U.S. Federal Reserve and other major central banks.  World economies have hit a soft spot largely due to trade uncertainties between China and the United States.  Canada is also being affected by depressed oil prices and a slowdown in the housing market.

Market watchers will be paying close attention to the Monetary Policy Report that comes with this week’s BoC rate setting.  Realtors and mortgage lenders have been pressuring for some loosening of the B20 stress test to allow some life back into the market.  The odds are against the Bank advocating for any easing.  Canadian households are still carrying record high debt loads and there are growing expectations of a recession within the next two years.  By First National Financial. 

New realities have home buyers adjusting

Canadian home buyers continue to accept and adjust to the new realities of the market, but that doesn’t mean they are happy about it.

A home ownership survey conducted earlier this year suggests nearly 40% of homeowners see themselves as being (or having been) “house poor”.  That means they are spending more than 30% of their total income on housing; mortgage, taxes, utilities and maintenance.  More than 90% of the respondents say that kind of money stress could have mental health effects.  While 51% say they would not put themselves in that position, just about all of the other half, 47%, say it would be worth the sacrifice.

This represents an opportunity for brokers who can provide practical advice, tailored to the needs of their clients.  Being available and providing information in real time goes a long way to easing anxiety and tensions for a home buyer.

The survey also shows signs that home buyers may be polarizing between those who believe they can go it alone and those who feel they are going to require financial help.   The number of buyers who feel they can go solo is 32%.  The number planning to get help from family is 28%.  The traditional model of buying a home with a partner or spouse has seen a decline, down to 42% compared to 49% in 2017.

The survey finds a full two-thirds of Canadians believe it is better to own than to rent.  By First National Financial.

Bond yield inversion: the case for calm

Anyone who has been watching knows that bond yields are falling and taking fixed rate mortgages with them.  The recent economic slowdown in both Canada and the U.S. has pushed down yields on five year government bonds on both sides of the border.  Those yields are used as the basis for setting interest rates on fixed mortgages.

An economic indicator known as the yield curve is has been getting a lot of attention lately.  The curve tracks the difference in the yields of short-term and long-term bonds.  Short-term can be as little as three months while long-term is 10 years or more.

Market watchers use the yield curve as a way to judge investor optimism about the future.  Long-term bonds traditionally offer better yields than short-term bonds.  The greater the difference between the short-end and the long-end of the curve, the greater the optimism about the future.

Occasionally though things get turned around and the yield curve “inverts”, with short-term bonds offering better yields than long-term.  Much is being made of this right now because it has happened, in both Canada and the United States, and it is widely viewed as bad news.

In the U.S., bond yield inversions have routinely been followed by a recession, in about a year.  But, like so much of what has happened over the past decade, this time is different.  Economists are nearly unanimous in downplaying the risk.  They point out that the inversion was not big enough and did not last long enough to trigger any alarms.  They also remind us that any possible recession will not happen overnight and is still a year away – plenty of time for action or a correction.  By First National Financial. 

Ottawa to strengthen National Housing Strategy 

The federal government announced Thursday that it is adding more strength to the National Housing Strategy.

The right to adequate housing for all Canadians will be supported by several key initiatives:

  • Requiring the adoption and maintenance of a National Housing Strategy (NHS), that prioritizes the housing needs of the most vulnerable and requires regular reporting to Parliament on progress toward the Strategy’s goals and outcomes.
  • Establishing a National Housing Council with diverse representation, including persons with lived experience of housing need and homelessness. The Council, supported by CMHC, will provide advice to the Minister on questions related to the NHS with the aim of improving housing outcomes.
  • Creating a Federal Housing Advocate, supported by the Canadian Human Rights Commission, to identify systemic housing issues facing individuals and households belonging to vulnerable groups, and provide an annual report to the Minister with recommended measures, which will be tabled in Parliament.

“Through the National Housing Strategy, more middle-class Canadians – and people working hard to join it – will find safe, accessible and affordable homes. Our proposed human rights-based approach to housing, as well as the resource centre, will help strengthen the National Housing Strategy, ensuring that it delivers concrete results for the benefit of all Canadians,” said Jean-Yves Duclos, Minister of Families, Children and Social Development and Minister Responsible for Canada Mortgage and Housing Corporation.

Resource centre

Also announced, is a new resource centre from CMHC which will be managed by the Community Housing Transformation Centre to build a strong and resilient community housing sector.

CHTC will receive $68.6 million for administering the resource centre and two important initiatives under the NHS:

  • A Sector Transformation Fund to provide non-repayable contributions that support building a strong and resilient community housing sector.
  • A Community-Based Tenant Initiative to provide contributions to local organizations whose purpose is to assist people in housing need, support tenants in accessing information on housing options, and encourage better participation in housing decisions that affect them.

“When CMHC held public consultations to develop the Strategy, we heard that Canadians believe everyone deserves to have the dignity of a home. The most promising way to sustain this approach for future generations is to protect it through legislation. Enshrining the need for a National Housing Strategy in law inherently acknowledges the value of a coordinated approach, a shared vision and real accountability. It is a way to bring housing and “rights” closer together. This idea really is central to our thinking at CMHC: housing matters,” said Evan Siddall, President and Chief Executive Officer Canada Mortgage and Housing Corporation.  By Steve Randall.

Ontario Real Estate Association Releases 28 Reform Recommendations 

Levelling the playing field with builders and developers, eliminating unlicensed real estate “consultants” and getting rid of “bully offers” top the list of reforms that the Ontario Real Estate Association (OREA) is recommending to the provincial government.

OREA’s recommendations also include creating an education program for potential real estate professionals that requires more in-class training and specialization in areas like condominiums, industrial and rural or waterfront properties.

OREA says there is currently a two-tier system of consumer protection that exempts builders and developers from having to follow the rules that all real estate salespeople in Ontario must follow when trading in real estate. Real estate auctions, although rare, are also exempt from the protections.

The association is also demanding removal of the grey area in the legislation that allows unlicensed real estate “consultants” to operate in Ontario.

On the topic of bully or pre-emptive offers, “If a home listing includes an offer date, that’s the date on which all offers should be considered; an offer made before that date should not be allowed,” says Karen Cox, OREA president. “This will ensure that all interested buyers of a particular home get a fair shot at making an offer. For sellers, it means they will have a chance to work with their Realtor to carefully and thoughtfully consider all offers without feeling like they are in a pressure cooker.”

The recommendations also suggest eliminating escalation clauses, a provision that a buyer can use to beat competing offers by automatically topping any better offer with a previously stipulated amount.

“A clause that allows a buyer to automatically bump all other offers out of the running in a multiple offer situation makes for a very uneven playing field,” says Cox. “Further, for the escalation clause to kick-in, a Realtor must reveal private financial information such as the highest offer on a home to the buyer using the clause, which violates the Realtor Code of Ethics. Eliminating contradictory rules like this will strengthen consumer confidence in the province’s real estate market.”

In transactions where real estate salespeople are caught breaching the act that regulates real estate in the province, OREA is calling for a process called disgorgement, which would force rule breakers to pay back any income they made by unethical means.

Also among OREA’s recommendations:

  • Provide the option for a more transparent offer process.
  • Give The Real Estate Council of Ontario (RECO) the authority to proactively investigate the worst offenders and kick people who break the rules out of the profession. When an individual’s license is revoked, implement a “cooling off” period of at least two years before the offending individual can reapply for registration. All applicants with violent criminal convictions or fraudulent convictions defined under Section 380 of the Canadian Criminal Code within the last 10 years should be denied the privilege of working in real estate, with no right of appeal, says OREA.
  • RECO should be granted authority to establish administrative monetary penalties, or fines under $2,000, for a range of regulatory violations as an intermediary disciplinary
  • Ontario still does not allow salespeople and brokers from operating their businesses through professional corporations. OREA is calling for fair tax treatment for Realtors.
  • Amend legislation to permit specialty licensing classes for commercial, agricultural, condominium and other forms of real estate.
  • Replace the term “salesperson” with “agent” and replace the term “registrant” with “licensee”.

By REMonline.com

National House Price Index

Canada’s home prices continued their downward trend last month according to a leading measure.

The Teranet-National Composite House Price Index was down 0.3% in March compared to the previous month, marking its first decline for any March in its 20-year history with the exception of the 2009 recession.

The sixth monthly decline meant a cumulative drop of 1.7% across the surveyed markets.

Indexes were down month-over-month in seven of the 11 metropolitan markets surveyed – Ottawa-Gatineau (−1.5%), Victoria (−1.1%), Vancouver (−0.5%), Calgary (−0.5%), Toronto (−0.3%), Winnipeg (−0.3%) and Hamilton (−0.1%). Four markets were up: Halifax (0.8%), Quebec City (0.5%), Edmonton (0.4%) and Montreal (0.1%).

Many of these markets have been showing declining prices for many months; including Calgary for nine (-3.7% cumulative), Vancouver for eight (-4.3%), Victoria for six (-3.5%).

Montreal by contrast has only seen one decline in the past 12 months (with a 5.5% cumulative gain) and Halifax has advanced in each of the past five months (+2%).

The index shows a percentage movement in house prices with indices’ base value of 100 in June 2005. For example, an index value of 130 means that home prices have increased 30% since June 2005.

No collapse

The declining trend is not a sign that house prices are in free fall.

“In Toronto, Canada’s largest real estate market, apartment prices have been up for 17 consecutive months, while prices of other types of dwellings declined only 1.4% over the last 6 months. In Vancouver, the most expensive market, employment growing 2.9% in Q1 on a y/y basis should limit further home price declines,” the report says.

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March Home Sales Rebound From Dismal February Showing

Statistics released Monday by the Canadian Real Estate Association (CREA) show that national home sales edged higher in March following the sharp decline in storm-struck February. Overall, however, housing activity remains considerably below historical norms.

Home sales rose 0.9% nationally while the benchmark price rose 0.8%. While this is an improvement from the very poor showing in February, both sales and prices were down from a year earlier as homebuyers grapple with stricter mortgage rules and provincial actions, especially in British Columbia, to slow the housing market.

There was an even split between the number of markets where sales rose from the previous month and those where they fell. Among Canada’s larger cities, activity improved in Victoria, the Greater Toronto Area (GTA), Oakville-Milton and Ottawa, whereas it declined in Greater Vancouver, Edmonton, Regina, Saskatoon, London and St. Thomas, Sudbury and Quebec City.

On a year-over-year (y/y) basis, sales fell 4.6% nationally to its weakest level for the month since 2013. Existing home sales were also almost 12% below their 10-year average for the month of March (see chart below). Notably, home sales in B.C., Alberta and Saskatchewan were more than a whopping 20% below their 10-year average for the month. The slump is getting deeper in Vancouver, Calgary and Edmonton. All three markets saw further sales and price declines in March. Demand-supply conditions in Vancouver are now the weakest since the 2008-09 recession. By contrast, activity is running well-above average in Quebec and New Brunswick.

There was a slight pick-up in Toronto, yet the 1.8% sales gain recorded last month reversed just a fraction of the outsized 9.0% drop in weather-weakened February. A sixth consecutive decline in new listings in Toronto might have been a restraining factor.

Activity rebounded in Ottawa, while it was flat in Montreal. Both markets, along with Halifax, still boast the tightest demand-supply conditions in Canada. Benchmark prices there continue to track higher at solid rates.

“It will be some time before policy measures announced in the recent Federal Budget designed to help first-time homebuyers take effect,” said Jason Stephen, CREA’s President. “In the meantime, many prospective homebuyers remain sidelined by the mortgage stress-test to varying degrees depending on where they are looking to buy.”

“March results suggest local market trends are largely in a holding pattern,” said Gregory Klump, CREA’s Chief Economist. “While the mortgage stress test has made access to home financing more challenging, the good news is that continuing job growth remains supportive for housing demand and should eventually translate into stronger home sales activity pending a reduction in household indebtedness,” he added.

New Listings

The number of newly listed homes rose 2.1% in March. New supply rose in about two-thirds of all local markets, led by Winnipeg, Regina, Victoria and elsewhere on Vancouver Island. By contrast, new listings declined in the GTA, Ottawa and Halifax-Dartmouth.

With new listings having improved more than sales, the national sales-to-new listings ratio eased to 54.2% from 54.9% in February. This measure of market balance has largely remained close to its long-term average of 53.5% since early 2018.

Based on a comparison of the sales-to-new listings ratio with the long-term average, two-thirds of all local markets were in balanced market territory in March 2019.

There were 5.6 months of inventory on a national basis at the end of March 2019, in line with the February reading and one of the highest levels for the measure in the last three-and-a-half years. Still, it is only slightly above its long-term average of 5.3 months.

Housing market balance varies significantly by region. The number of months of inventory has swollen far above its long-term average in Prairie provinces and Newfoundland & Labrador; as a result, homebuyers there have an ample choice of listings available for purchase. By contrast, the measure remains well below its long-term average in Ontario and the Maritime provinces.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) declined by 0.5% y/y in March 2019. It last posted a y/y decline of similar magnitude in September 2009.

Among benchmark property categories tracked by the index, condo apartment units were the only one to post a y/y price gain in March 2019 (+1.1%), while townhouse/row unit prices were little changed from March 2018 (-0.2%). By comparison, one and two-storey single-family home prices were down by 1.8% and 0.8% y/y respectively.

Trends continue to vary widely among the 18 housing markets tracked by the MLS® HPI. Results remain mixed in British Columbia, with prices down on a y/y basis in Greater Vancouver (-7.7%) and the Fraser Valley (-3.9%). Prices also dipped slightly below year-ago levels in the Okanagan Valley (-0.8%). By contrast, prices rose by 1% in Victoria and by 6.4% elsewhere on Vancouver Island.

Among Greater Golden Horseshoe housing markets tracked by the index, MLS® HPI benchmark home prices were up from year-ago levels in Guelph (+6.6%), the Niagara Region (+6.0%), Hamilton-Burlington (+3.7%) the GTA (+2.6%) and Oakville-Milton (+2.3%). By contrast, home prices in Barrie and District held below year-ago levels (-6.1%).

Across the Prairies, supply remains historically elevated relative to sales and home prices remain below year-ago levels. Benchmark prices were down by 4.9% in Calgary, 4.4% in Edmonton, 4.6% in Regina and 2.7% in Saskatoon. The home pricing environment will likely remain weak in these cities until demand and supply become more balanced.

Home prices rose 7.6% y/y in Ottawa (led by a 10.4% increase in townhouse/row unit prices), 6.3% in Greater Montreal (led by an 8.1% increase in apartment unit prices) and 2.1% in Greater Moncton (led by a 12.9% increase in apartment unit prices). (Table below).

Bottom Line:

The absence of a sharp snapback in activity at the beginning of the all-important spring season in March clearly points to the mortgage stress test, market-cooling measures in BC, economic uncertainty in Alberta and stretched affordability as continuing to exert significant restraint on homebuyer demand. The bad weather’s effect on February sales may have been limited after all. This means that the spring season may not have much upside to offer this year. In coming months, the recent declines in mortgage rates should ease the stress test for some buyers and we will see if first-time home buyers decide to put their plans on hold until more details on the federal government’s First-Time Home Buyer Incentive become available.

It has become increasingly apparent that the taxes levied in Vancouver targetting foreign buyers, empty homes, and high-end properties have sent Vancouver’s luxury housing market reeling. Prices in West Vancouver, one of Canada’s richest neighbourhoods, are down 17% from their 2016 peak. The slowdown is broadening: home sales in March were the weakest since the financial crisis as the benchmark prices fell 8.5% from their record last June. Bloomberg News published the following story today:

“It’s become more costly to both buy and own expensive homes (in Vancouver), particularly for non-resident investors and foreigners. To get a sense of the impact from the municipal, provincial and federal measures, take as a hypothetical example, the province’s most valuable property: the C$73.12 million ($55 million) house belonging to Vancouver-based Lululemon Athletica Inc. founder Chip Wilson. A foreign purchaser of the home who leaves the property empty for much of the year would end up paying as much as C$20.8 million in taxes as follows:

Taxes on purchase:

  • Foreign buyers’ tax of 20%: C$14.6 million surcharge on top of the sales price
  • Property transfer tax rate climbs to 5% on most expensive homes: C$3.7 million

Ownership taxes:

  • Municipal vacancy tax of 1% on assessed value: C$731,200 a year
  • Provincial speculation and vacancy tax, 2% of assessed value: C$1.46 million a year
  • Provincial luxury home tax known as the additional school tax of 0.2% to 0.4% of assessed value: C$278,480 a year

Additional government moves:

Federal rules tightening mortgage lending made it harder to obtain larger mortgages and harder for foreign buyers to borrow

Proposed legislation will expose anonymous Vancouver property owners in a public registry to stymie tax evasion, fraud and money laundering.”

It is not surprising, therefore, that Asian investment–a stalwart part of the Vancouver real estate market for decades–has dropped sharply. “Chinese investors are retreating globally following government restrictions on capital outflows in 2016. In Vancouver, Asian investment dropped off even more last year due in part to a series of new taxes instituted by the government, including a speculation and wealth tax on homes. The province has also proposed a bill to expose hidden landowners — both residential and commercial — and failure to disclose may result in a fine of C$100,000 or 15% of the property’s assessed value, whichever is greater. This is apparently already driving away some investors.” Bloomberg News has reported that at least some Chinese money is being diverted from the Vancouver market to Toronto as shown in the following Bloomberg chart.

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

Realtors & Short Term Rentals

Last week, the Travel Industry Council of Ontario (TICO) and Real Estate Council of Ontario (RECO) confirmed the right of real estate brokerages to transact short-term rental properties.

Another advocacy win for REALTORS®.

Thanks to this ruling, our members will not have to register as travel agents in order to transact vacation properties provided they do it through their brokerage – saving members thousands of dollars in costs and dozens of hours taking courses/passing exams!

Going forward, OREA will be working with Minister Bill Walker and his team to address the issue for the long-term as part of the Province’s updates to REBBA.

Read OREA’s statement here.

Read the RECO bulletin here.

Read the TICO bulletin here.

Mortgage Update - Mortgage Broker London

Economic Highlights
Bank of Canada maintains overnight rate target at 1 ¾ per cent
The Bank of Canada today maintained its target for the overnight rate at 1 ¾ per cent. The Bank Rate is correspondingly 2 per cent and the deposit rate is 1 ½ per cent.
Monetary Policy Report – April 2019
The Bank’s new forecast calls for real economic growth of 1.2 per cent this year, 2.1 per cent next year and 2.0 per cent in 2021.
IMF’s predictions regarding the economy are too optimistic  
The International Monetary Fund’s predictions of the Canadian economy’s prospects for next year are far more optimistic than what is warranted by current figures, Deloitte Canada chief economist Craig Alexander stated.
In its latest outlook, the IMF pulled back its growth estimate for Canada to 1.5% this year, down from the 1.9% forecast in January.
However, Alexander contested the IMF’s prediction of a Canadian recovery of 1.9% in 2020, which will accompany an expected global growth of 3.6% that year.
“They’re too optimistic,” he told the Financial Post. “The reality is that many people’s expectations of what represents good growth are actually too high.”
The economist projected that Canadian GDP will grow by 1.3% in 2019, and then only a miniscule gain to 1.5% in 2020.
An important factor working through the market is the steadily increasing overall debt level, which has hobbled the purchasing power of a significant proportion of consumers, Alexander explained. The latter aspect is especially apparent in the precipitous decline of large retail and real estate purchases.
Moreover, businesses have by and large adapted conservative investment strategies for the time being, mainly due to global turmoil in financial markets. A long-term goal of surviving in this environment should push Canada to make its tax and regulatory regimes conducive to further competition and investment, Alexander stressed.
Earlier this month, Bank of Canada Governor Stephen Poloz assured that Canada’s economic slowdown will ultimately be a fleeting state of affairs. He cited modest economic growth at the beginning of the year, along with a flexible exchange rate, as elements buttressing the nation’s fundamentals.
“There are challenges in the Canadian and global economies that we need to manage, but there are clear signs that Canada is adjusting to the challenges,” Poloz said. “Recent economic data have been generally consistent with our expectation that the period of below-potential growth will prove to be temporary.”  By Ephraim Vecina.
BoC gov’s decision today likely to lead to ‘prolonged pause’
BoC governor Stephen Poloz will most likely set the stage for a lengthy pause on interest rate hikes today, according to analysts surveyed by Bloomberg.
The benchmark overnight rate is expected to stay at 1.75%, amid the more troubling impacts of a sustained economic slowdown aggravated by slower global growth and a cross-Pacific trade war.
Such a decision would be the fourth consecutive hold by the bank.
“The Bank of Canada is still one of the most hawkish central banks globally, and I expect Governor Poloz is going to want to maintain some optionality [to raise rates],” Manulife Asset Management head of macroeconomic strategy Frances Donald said, noting that this stance will give the central bank the tools that it will need to stave off “another borrowing binge.”
“Full capitulation like we’ve seen from the Federal Reserve or the European Central Bank in my view is unlikely,” Donald added.
Earlier this month, Poloz asserted that the Canadian economy will still benefit from the boost that low borrowing costs can provide, considering the current environment of global economic uncertainty.
“That is why we said at our last interest rate announcement in March that the economic outlook continues to warrant a policy interest rate that is below the neutral range to help the economy work through this downshift in growth and keep inflation close to target,” Poloz stated back then, as quoted by BNN Bloomberg.
“There are challenges in the Canadian and global economies that we need to manage, but there are clear signs that Canada is adjusting to the challenges… “Recent economic data have been generally consistent with our expectation that the period of below-potential growth will prove to be temporary.”  By Ephraim Vecina.

Mortgage Interest Rates

No change to Prime lending rate is 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates have dropped between 5-10 basis points in the last two weeks.  Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages somewhat attractive, but still not significant enough spread between the fixed and variable to justify the risk for most.

 

Other Industry News & Insights

Roundup of the latest mortgage and housing news.

From Mortgage Professionals Canada.

There is never a better time than now for a free mortgage check-up.  It makes sense to revisit your mortgage and ensure it still meets your needs and performs optimally.  Perhaps you’ve been thinking about refinancing to consolidate debt, purchasing a rental or vacation property, or simply want to know you have the best deal?  Whatever your needs, we can evaluate your situation and help you determine what’s the right and best mortgage for you.

10 Apr

RESIDENTIAL  MARKET UPDATE 

General

Posted by: Adriaan Driessen

Industry & Market Highlights 

Federal budget’s housing measures miss the mark

Incentives in the federal budget for first-time homebuyers crippled by soaring housing costs could worsen affordability woes.

“It’s all about increasing demand for housing without doing much to increase supply, and you don’t need to be an economist to know that if you increase demand without increasing supply, you’ll end up with higher house prices, which is the oppose of the intention,” said Sherry Cooper, Dominion Lending Centres’ chief economist.

Rather than encouraging more buyers to compete for inadequate housing inventory, Cooper believes construction inducements would have been more beneficial.

“The government could have done things to increase supply, like changing the rules around zoning and the Greenbelt to open up more land,” she said. “They could even subsidize housing construction or eliminate some of the red tape and other delays in construction. There are other things that could have been done to incentivize the construction of new housing.”

Instead, the federal government introduced the First-Time Home Buyer Incentive, in which the Canada Mortgage and Housing Corporation will provide first-time buyers up to 10% of the purchase price of a new construction home, and 5% of a resale. Beyond that, a crucial question remains unanswered.

“It remains unclear whether the government would take an equity position in the home or whether this would act as an interest-free loan,” said James Laird, president of CanWise Financial. “This is an important distinction because if the government is taking an equity stake in a home, the amount that the homeowner would have to pay would grow as the value of the home increases.”

Added Cooper: “It appears they’re calling it a shared equity mortgage, which means you pay off the loan when you sell the house. It may well be that you pay off 10% or 5% of the sale price as opposed to that of the purchase price, so we don’t know the details yet, but one needs to consider whether you’re also sharing appreciation—the equity you have in your home—when you sell it. Or, for that matter, even a loss.”

One of B-20’s biggest criticisms is that it’s burdened housing markets across the country with a remedy tailored for the Vancouver and Toronto markets. The budget’s First Time Home Buyer Incentive demonstrates the federal government is both aware of the misstep and committed to rectifying it.

“The government has also placed limits on the First-Time Home Buyer Incentive, including a maximum household income of $120,000, and alluded to putting a ceiling on the program’s qualifying home price,” said Laird. “These criteria demonstrate that this program is aimed at Canada’s small- and medium-sized housing markets, as opposed to major urban centres where many households will exceed the maximum income threshold.”

Still, other housing measures in the budget are confounding. The RRSP Home Buyers’ Plan increased the withdrawal amount to $35,000 from $25,000, however, Laird worries it’s short-sighted.

“This program modification will be helpful in getting Canadians into their first home but will also be a burden because the loan has to be repaid within 15 years, including a minimum of one-fifteenth per year,” he said. “This means that, in the years following their home purchase, a homeowner has the additional responsibility of repaying their RRSP.”  By Neil Sharma.

First-Time Home Buyer Incentive reduces qualifying power  

A major item from this week’s federal budget will further reduce, rather than enhance, affordability for first-time homebuyers.

The First-Time Home Buyer Incentive—in which the Canada Mortgage and Housing Corporation will provide up to 10% on the purchase price of a new build and 5% on a resale—caps household income at $120,000. The policy further states that “participants’ insured mortgage and the incentive amount cannot be greater than four times the participants’ annual household incomes.”

First-time buyers who think the incentive raises their qualifying power are in for a surprise. Under current qualifying criteria, including the stress test, buyers qualify for homes that are 4.5-4.7% their household income. By using the First-Time Home Buyer Incentive, they would reduce their qualification amount by 15%.

“The total a first-time homebuyer gets between their mortgage and the incentive they receive from the government can’t exceed four times their household income,” said James Laird. “This qualifying criteria is actually stricter than the regular qualifying criteria that exists today. I was surprised the policy itself was launched like this since that section of the budget is called ‘Affordability’ and it actually reduces affordability.”

According to calculations provided, a household with $100,000 of income that puts a 5% down payment on a home, totalling $23,994, qualifies for a $479,888 home. However, with CMHC insurance, that amount declines to $474,129 with a monthly mortgage payment of $2,265.

If the same household participating in the First-Time Home Buyer Incentive uses the maximum purchase price, it qualifies for $404,858. If it uses the minimum down payment of 5% at $20,242, the total mortgage amount becomes $400,000 with a $1,911 monthly mortgage payment.

“The number one issue facing first-time homebuyers is how much they qualify for, not the monthly payment after the home closes, and that’s what this is aimed at,” continued Laird. “They qualify for less if they use this program.”

That might not be the only problem with the First-Time Home Buyer Incentive. A similar program launched by British Columbia’s Liberal government was axed last March by the NDP after it was revealed that only around 3,000 homebuyers used it—far fewer than the expected 42,000.

“Given the evidence provided through one of the largest provinces in the country trying a program that didn’t work, I’m not sure what the federal government thinks will be different,” said Laird, adding that housing measures in the budget were spare on details.

“I was amazed that one of the key parts of their budget hadn’t been properly thought through and didn’t contain detail. I expect that before this program actually goes live, one, we’ll get more detail, and two, it will be amended to take care of this issue.” 

Lower mortgage rates as bond yield inverts 

The current decline in the bonds market is good news for Canadian fixed-rate mortgage borrowers with rates heading lower.

As the bond market yields invert – as they did Monday in Canada – the cost to banks of borrowing in the market declines, meaning they are able to finance mortgages at a lower rate and pass savings on to customers.

It’s not all good news though because the inverted yield, also seen in US bonds, is often a foreteller of weakening economic conditions and potentially recession.

However, this risk is likely to mean that the BoC will remain highly cautious of increasing interest rates.

An outlook from TD Economics’ Beata Caranci and James Orlando suggests that Canada may need “the real interest rate to remain close to or below zero for a long period” with the deleveraging process only just starting.

There is a growing cohort of investors and analysts that believe the BoC’s next move on rates will be a cut and that is proving good news for variable rate mortgage borrowers too.

Janine White, vice-president of Ratesupermarket.ca told CBC News that rates will climb in the next couple of years but “for the rest of 2019 the prediction is that the variable rate is going to be stable and maybe has a chance of coming down.”  By Steve Randall. 

Residential Market Commentary – Budget Help for House Hunters

The new federal budget certainly got the attention of house hunters, realtors and mortgage professionals.  Unfortunately the announcement turned into a cliff-hanger and we will have to wait for the next episode to find out what is really going to be delivered.

The budget contains two key components aimed at addressing affordability concerns and making it easier for first-time buyers to get a home.

The first is a straight-forward expansion of the current “Home Buyer’s Plan” that allows the use of RRSP money for a down payment.  The maximum amount of the RSP withdrawal has been bumped up from $25,000 to $35,000 – but the 15-year pay-back period is unchanged.

The second component is more complicated and some important details were left unexplained in the budget.  The “First Time Home Buyer Incentive” amounts to an interest-free loan from Canada Mortgage and Housing Corporation.  There are several conditions but it allows CMHC to take an equity stake in a qualifying mortgage.  The money will be paid back to CMHC when the property is sold, or sooner if the owner choses.

The cliff-hanger is: how much money will go back to the housing agency.  Does the homeowner pay back the amount borrowed, or does CMHC get a share of the increased value of the property?  Conversely, if the property value drops does CMHC share in the loss, or is the owner still liable for the full amount of the original loan?  The answers are supposed to come in the fall.

Several prominent economists point out, that neither program actually makes housing more affordable.  They merely add to the options for taking on debt that will have to be repaid.  By some calculations the FTHBI might even decrease the maximum amount a buyer can qualify for.

Mortgage professionals and realtors have their own concerns, particularly about the delay in getting the details delivered.  They worry that leaving the announcement until the fall could hobble the spring buying season as house-hunters wait to find out if they will be able to benefit from the federal programs. By First National Financial.

Economic Highlights

Canadian mortgage rates are falling as bond yields slide lower  

Yield on 5-year government debt has dipped below 1.5%, its lowest level since 2017.  What’s bad news for some is good news for others, and Canadian mortgage-holders are the unexpected beneficiaries of some of the gloom that’s hovering over Canada’s economy.

Fixed mortgage rates have been falling precipitously in recent weeks, as the cost of financing those loans has gotten cheaper. Banks and other lenders get the money that they loan out in mortgages by borrowing it themselves on the bond market, and the yields on five-year bonds have been falling since May 2018.

A five-year Government of Canada bond was yielding just 1.45 per cent on Monday. That’s the first time the figure has been below 1.5 per cent since the summer of 2017.

Last week, the yield curve on long-term lending versus short-term inverted, a rare event that has an uncanny knack for predicting recessions. (For a longer explanation on what an inverted yield curve means, read this.)

Bond yields are heading lower largely because investors think the prospects for the economy are looking dim, so they expect interest rates to start moving lower.

Lower bond yields are generally “not a good sign from an economic standpoint,” says Janine White, vice-president of rate comparison website, Ratesupermarket.ca, “but it’s great for mortgage borrowers.”

That’s because cheaper financing costs are allowing the banks to cut their mortgage rates to try to entice borrowers. 

Royal Bank has since cut that rate two more times, first by 10 basis points on March 1 and then by another 15 basis points on March 13. The bank’s five-year fixed rate is now at 3.49 per cent, and other lenders are indeed following suit.

TD Bank currently has a special five-year fixed rate of 3.49 per cent. Smaller lenders are even lower. Dominion Lending Centres is offering 3.29 per cent locked in for five years, while HSBC Canada has a special five year of 3.24 per cent at the moment.

Variable rates moving lower too

And it’s a similar story on the variable rate side — albeit for different reasons.

Unlike fixed rate mortgages which take their cues from the bond market, variable rate mortgages tend to move in conjunction with whatever the Bank of Canada is doing.

And investors are betting that the central bank will soon be moving its rate down, not up. Investors in financial instruments known as overnight index swaps are pricing in zero chance of a hike this year, but about a one-in-five chance of a cut by July, and up to a 44 per cent chance by September.

White says the variable-rate mortgage market is simply pricing in some of the negative economic indicators of late, including lower inflation and an anemic GDP number that showed Canada’s economy actually shrank to close out 2018.

“There’s an increased probability they will actually cut to try to fuel economic growth,” White said, of her expectations for Canada’s central bank.

One of the biggest shifts that occurred in our quarterly March forecast was the removal of any further interest rate hikes from our outlook.

And economists are predicting the same thing.

“One of the biggest shifts that occurred in our quarterly March forecast was the removal of any further interest rate hikes from our outlook,” TD Bank’s chief economist Beata Caranci said in a note on Monday. “We hit the stop button.”

Variable rates have not just stopped going up, they’ve shifted into reverse and gone down in some cases. Rates below three per cent are now common, both at the big banks and at alternative lenders.

The spring is always a key time in the mortgage markets. That’s because the lion’s share of home purchases happen in those months, so lenders try to compete as much as possible on rates to take as big a bite as they can of that business.

Given that, the sudden trend towards cheaper lending could well stick around for a bit, White says.

“Are we still going to be headed for interest rate increases in the next couple of years? Yes,” she says. “[But] for the rest of 2019 the prediction is that the variable rate is going to be stable and maybe has a chance of coming down.”  By Pete Evans, CBC News.

Mortgage Interest Rates

Prime lending rate is 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates have dropped between 10-15 basis points in the last two week.  Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages somewhat attractive, but still not significant enough spread between the fixed and variable to justify the risk for most.

This edition of the Weekly Rate Minder shows the latest rates available for Canadian mortgages. At Dominion Lending Centres, we work on your behalf to find the best possible mortgage to suit your needs.

Explore mortgage scenarios using helpful calculators on my website: http://www.iMortgageBroker.ca

Other Industry News & Insights

Roundup of the latest mortgage and housing news.

From Mortgage Professionals Canada.

20 Mar

WEEKLY RESIDENTIAL MARKET UPDATE

General

Posted by: Adriaan Driessen

London Mortgage Broker – Market Update

Industry & Market Highlights 

Liberal Government Woes & Housing   

After two years of continuous rule changes reducing home owners purchasing power, creating a massive affordability gap, and stealing the future wealth from first time homeowners now unable to purchase their first home – the new Federal budget includes first-time buyer incentives.

It’s hard not to see this as a public opinion political stunt on the eve of a federal election this fall.  Real Estate and Mortgage Industry professional associations have been telling the liberal government for the past two years they have made a wrong move. To top it off, The Justice Committee met behind closed doors to decide whether Canadians could hear the whole story on the SNC-Lavalin scandal. Unsurprisingly, the Liberals used their majority to cover it up. And now, Justin Trudeau plans to use his pre-election, big deficit budget to get his corruption scandal out of the newspaper headlines.  Don’t you just love honestpoliticians… Oh Canada! See more HERE.

Mortgage Professionals Canada Federal Budget 2019 Housing Market Overview  

Mortgage Professionals Canada welcomes aspects of the housing affordability component of today’s Federal Budget.

The announcement of a new CMHC First-Time Home Buyers Incentive Plan represents a shared equity mortgage program that would give eligible first-time homebuyers the ability to lower their borrowing costs by sharing the cost of buying a home with CMHC.

The incentive would provide funding (equity sharing) of up to five percent of the purchase price of an existing home, or 10 percent of a newly constructed home. No ongoing monthly payments are required. The buyer would repay the incentive, for example at resale. The government has budgeted up to $1.25 billion over the next three years to support this program.

For example, if a borrower purchases a $400,000 home with five per cent down and a five per cent CMHC shared equity mortgage ($20,000), the size of the borrower’s insured mortgage would be reduced from $380,000 to $360,000, helping to lower the borrower’s monthly mortgage bill. This would make it easier for Canadians to buy homes they can afford.

The program limits eligibility to households earning a maximum of $120,000 annually, and lets them borrow no more than four times their annual household income. This limits a home purchase to roughly $505,000. This Incentive Plan will be discussed more fully in the coming days, but it is not expected to begin until fall, 2019. In principle, the increased equity share eligibility for newly constructed homes will help incent new construction and supply across Canada.

Further analysis is needed, however, some aspiring homebuyers, especially at the lower end of the economic ladder, will have greater opportunities to purchase a home with the assistance of this new program.

Also of note is an increase in the eligible RRSP withdrawal amount through the Home Buyers’ Plan (HBP). Previously $25,000, this has been increased to a maximum to $35,000.

The budget included a lengthy defense of the current stress tests but does suggest that adjustments may be made in future. We will continue to discuss this issue with policymakers.

While we did not see immediate movement on the stress tests, and the new Home Buyers Incentive Plan can be seen as an alternate and more targeted response than an insurable 30 year amortization, we are encouraged by the announcements made today.

The forthcoming federal election will provide opportunities to continue the conversations with policymakers and candidates in the coming months. We will continue our ongoing market analysis and maintain our support for a stable housing market for our members and their customers.

Residential Market Commentary – Less Wealth as Debt to Income Grows again

Canadian households are a little poorer and a little deeper in debt.  The latest numbers from Statistics Canada show the country’s national wealth diminished and the infamous debt-to-income ratio increased in the fourth quarter of 2018.

The net worth of the household sector dipped 2.8% in the final three months of last year, to $10.74 billion.  The slowing housing market was a factor but the main cause was a drop in the value of “financial assets”, led by a 7.5% decrease in the price of stocks and other investment fund shares.

The fourth quarter of 2018 was the worst quarter for real estate since Q4-2008.  A 1.4% decline in the value of residential real estate is pegged with leading an overall drop of 1.0% in the value of “non-financial” assets.  In general real estate is the biggest non-financial asset for any household.

Canada’s worrisome household debt-to-disposable-income ratio edged up again at the end of 2018.  It is now 178.5%, or $1.79 in debt for every $1.00 that is left after all of the other bills are paid.  Most of that increase was triggered by mortgage borrowing.  Demand for mortgage loans was up, while other consumer credit borrowing declined.  The Bank of Canada calls the high debt-to-income ratio the biggest domestic threat to the country’s economy.

StatsCan is offering some reassurance.  It points out that the first two months of this year have shown signs of a rebound.  Employment numbers for both January and February were far above expectations.  February also showed an uptick in wage growth the exceeded forecasts. By First National Financial.

Economic Highlights

Canadian Economy Hits a Major Pothole in Q4  

Stats Canada released disappointing figures showing that the economy barely grew in the final quarter of last year. Weakness in the oil sector was expected, but the downturn went well beyond the energy sector and bodes ill for a return to healthy growth this year.

The country’s economy grew by just 0.1% in the fourth quarter, for an annualized growth rate of 0.4%–the weakest performance since the second quarter of 2016, down from an annualized 2% pace in the third quarter and well below economist’s expectation of a 1% annualized gain.

For the year as a whole, real gross domestic product (GDP) grew at a 1.8% pace in 2018, down substantially from the 3% growth recorded in 2017. In comparison, the U.S. economy grew 2.9% last year with Q4 growth at 2.6%.

Canada’s economy was battered by lower export prices for crude oil and crude bitumen walloping Alberta. Housing activity in the province slowed from already weak levels as unsold inventories rose and prices edged downward. As well, business investment dropped sharply in the final three months of the year, and household spending slowed for the second consecutive quarter.

Consumer spending on durable goods, especially motor vehicles, hit the skids as overall household outlays for products and services weakened. Consumption spending grew at the slowest pace in almost four years.

Housing fell by the most in a decade, business investment dropped sharply for a second straight quarter, and domestic demand posted its most significant decline since 2015. Housing investment plummeted, falling at a 3.9% quarterly rate as the housing market continued to soften, with the most substantial decrease in new construction (-5.5% quarterly), followed by renovations (-2.7%) and ownership transfer costs (-2.6%). (*see note below)

Business investment in plant and equipment fell 2.9%, the sharpest drop since the fourth quarter of 2016.

The only thing that kept the nation’s economy from contracting was a build-up in inventories as companies stockpiled goods. Without a doubt, much of the inventory accumulation was unintended, as the slowdown in demand caught businesses by surprise.

Implications for the Bank of Canada

Canada’s economy has been plagued by trade uncertainties, reduced oil demand by the U.S., rising interest rates, and tighter mortgage credit conditions. Consumer and business confidence has declined, and inflation remains muted. Despite a relatively robust labour market, wage growth has slowed. The Bank of Canada is widely expected to stay on the sidelines next week when the Governing Council meets once again on Wednesday. The central bank’s latest forecast, from January, was for annualized growth of 1.3% in the fourth quarter, more than three times stronger than today’s reported pace of 0.4%. The Bank expects growth to decelerate further to 0.8% in the current quarter, before rebounding back to above 2% growth by next year.

The latest data puts the economy’s ability to rebound to more normal levels in question. Monthly data released today show the economy ended the year contracting, with December gross domestic product down 0.1%. Most economists now expect the Bank of Canada will refrain from raising interest rates for the remainder of this year.

*Note:

*Housing investment in the GDP accounts is technically called “Gross fixed capital formation in residential structures”. It includes three major elements:

  • new residential construction;
  • renovations; and
  • ownership transfer costs.

New residential construction is the most significant component. Renovations to existing residential structures are the second largest element of housing investment. Ownership transfer costs include all costs associated with the transfer of a residential asset from one owner to another. These costs are as follows:

  • real estate commissions;
  • land transfer taxes;
  • legal costs (fees paid to notaries, surveyors, experts, etc.); and
  • file review costs (inspection and surveying).

Royal Bank Cautions Against Budget Measures to Increase Millennial Homeownership Demand

A new report hit my inbox yesterday written by Robert Hogue, a senior economist at the Royal Bank urging the federal government to withhold the expected support for millennial home purchases in the March 19th budget. Mr. Hogue writes that “Federal Finance Minister Bill Morneau is reportedly poised to unveil new budget measures to help more Canadian millennials become homeowners. While that generation does face housing-related challenges, especially in some larger and more expensive Canadian cities, we urge him to tread carefully. On the surface, ideas like relaxing the mortgage stress test, extending the maximum amortization period for insured mortgages, or increasing the amount of RRSP take-out for a first home down payment might bring short-term relief to buyers. But they do nothing to address what we believe is the root of Canada’s housing woes: gaps in the mix of housing options in some of Canada’s larger markets. Meanwhile, the measures won’t address the issue of high household debt, and may actually inflate home prices.”

The bank economist takes “issue with the notion that Canada has a home ownership problem in the first place. On average, more than 40% of Canadian households under 35 years of age own their own homes. And the proportion of all Canadian households who own a home is one of the highest among advanced economies. Even Toronto and Vancouver—the least affordable markets in the country—rank near the top of global cities on home ownership and have home ownership rates that are about double cities like Paris and Berlin. And despite a notable decline in the past decade, the ownership rate among younger households (Canada’s millennials) remains not only high historically in Canada but also compared to other countries, including the U.S.”

I urge you to read the report. The data provided in the charts are compelling. The real problem is the dearth of supply of “starter” homes in Canada’s most expensive cities. The measures likely to be introduced in the budget will not address the housing supply gaps and could well further inflate prices. “What millennials in Vancouver and Toronto really need is more inventory of homes they can afford, and a better mix of housing options—be it to own or rent…. At the very least, the collective goal should be to remove barriers (regulatory, administrative or otherwise) inhibiting home developers and builders to respond quickly to the demand for new housing—especially when that demand is rising rapidly.”  By Dr. Sherry Cooper. Chief Economist, Dominion Lending Centres.

 

Mortgage Interest Rates

Prime lending rate is at 3.95%.  The Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates are slowly moving down again.  Some lenders are offering special promotional rates to try and take more market share.  Variable rate discounts are offered by some lenders making adjustable variable rate mortgages somewhat attractive.

Other Industry News & Insights
Roundup of the latest mortgage and housing news. 
From Mortgage Professionals Canada. 
There is never a better time than now for a free mortgage check-up.  It makes sense to revisit your mortgage and ensure it still meets your needs and performs optimally.  Perhaps you’ve been thinking about refinancing to consolidate debt, purchasing a rental or vacation property, or simply want to know you have the best deal?  Whatever your needs, we can evaluate your situation and help you determine what’s the right and best mortgage for you.
26 Feb

RESIDENTIAL MARKET UPDATE

General

Posted by: Adriaan Driessen

Industry & Market Highlights 
The next move: no move for BoC
The next rate setting by the Bank of Canada will be on March 6th and market watchers are not expecting any change.
Governor Stephen Poloz set a fairly dovish tone in his recent speech to the Chamber of Commerce of Metropolitan Montreal.  Poloz called the bank’s current rate of 1.75%, stimulative because it is still below the rate of inflation, which is running at about 2.0%.  And Poloz said the rate’s climb into the neutral range of 2.5% to 3.5% is “highly uncertain”.
A neutral policy rate is one which neither stimulates nor constrains the economy.
The central bank remains concerned about uncertainties that include the effects of higher interest rates on heavily indebted Canadians, stricter mortgage rules, how business investment proceeds in the current global trade environment and the current unexpected slump in the price of oil.
“We will remain decidedly data-dependent as the domestic and international situations evolve,” Poloz said.
Canada’s improving economy has allowed the BoC to raise rates five times since mid-2017, but there has been no movement since last October.
Many analysts now expect there will be no more than two, quarter-point increases in 2019, and then not until later in the year.  The bank has no compelling economic reasons to move on rates and the next federal budget will be delivered on March 19th, less than two weeks after the next setting date.  That alone would be enough to keep the bank from making any changes.
The campaign for the upcoming federal election, set for October 21st, will also hold the bank in check. By First National Financial.
Residential Market Commentary – The slide continues
We are now through the second January under the tougher, federal B-20 mortgage qualification rules and the housing market continues to cool.
The latest figures posted by the Canadian Real Estate Association show sales dipped 4.0% compared to a year ago, although sales climbed 3.6% month-over-month compared to December. 
The national average price for a home dropped 5.5% compared to January 2018.  It now stands at a little less than $455,000 for all types of housing.  That number is, of course, heavily skewed by the high prices in Toronto and Vancouver.  When those two markets are factored out the average price falls to about $360,000.
CREA says homebuyers are still adapting to the stricter mortgage rules.  The association’s Chief Economist, Gregory Klump, cautions that the B-20 rules and previous tightening will have an effect on economic growth this year.
The number of homes that went on the market in January edged up 1.0% from December.  When than modest increase is combined with the month-over-month rise in sales the ratio of new listings to sales tightened to 56.7%, from 55.3% in December.   CREA says that falls within the long-term average and that more than half of all the markets it monitors are considered balanced. By First National Financial.
Residential Mortgage Quarterly Review – Q4 2018
The pronounced downturn in the country’s real estate market has not been enough to get the Canada Mortgage and Housing Corporation to lower the red flag it has been flying for the past nine quarters.  The housing agency continues to see a high degree of vulnerability in the overall market.
High prices and the usual suspects
Overvaluation remains the key concern in Victoria, Vancouver, Hamilton and Toronto.  The biggest, busiest and most expensive markets in the country continue to dominate the calculations.
The latest figures from the Canadian Real Estate Association show that prices are moderating.  CREA reports a 4.9% decrease in the national average price in December, compared to a year earlier.  The association is forecasting an overall decline of 4.2% for 2018, compared to 2017.  But the association points out that most of that drop is compositional, based on lower sales of high priced homes in Vancouver and Toronto.  When sales are weighted to compensate for the two most expensive markets in the country, the price decline comes in at about 1% for a national average of just under $489,000.
CMHC notes these falling prices, especially in British Columbia and Ontario, and says the markets are falling in line with economic fundamentals.
Policy headwinds
CREA continues to point to government policy and rising interest rates as the biggest drags on the housing market.  The association is projecting an 11% drop in sales for 2018, and in its latest report shows a 2.5% decline between November and December.
As with CMHC, CREA points to the influence of Toronto and Vancouver on the overall numbers.  Slowdowns in these two markets mask on-going improvements in Quebec, led by Montreal, and the Maritimes.
2019 looks a little brighter
Looking ahead to the rest of this year the realtors are a little more optimistic.  CREA sees the national average home price gaining about 1.7% to just shy of $500,000.  It is also forecasting a very modest decline in sales of about 0.5%.
CREA says economic fundamentals such as population, employment and wage growth remain favourable for the housing market.  By First National Financial.
 
LSTAR’s News Release for January 2019 – Home sales off to a strong start 
London and St. Thomas Association of REALTORS® (LSTAR) announced 525 homes* were sold in January, up 17.4% over January 2018. The number of home resales was higher than the 10-year average, with the second highest number of units sold in January since 2010.
“We’re starting to observe signs of movement toward more balance in the marketplace, based on the sales-to-new listings ratio,” said Earl Taylor, 2019 LSTAR President. “In January, the ratio was 60.9% across LSTAR’S jurisdiction. The Canadian Real Estate Association (CREA) says a ratio between 40% and 60% is generally consistent with a balanced market.”
Bucking the trend was St. Thomas, who saw a sales-to-new listing ratio of 80.3% in January, which CREA says represents conditions in the marketplace that favour sellers. St. Thomas also achieved a new high in the last 10 years with its average home sales price.
“In January, average home sales price in St. Thomas was $343,178, up 34% compared to January 2018,” Taylor said. “Going further back, that’s up 68.9% compared to January 2014 and up 86.7% compared to 10 years ago.”
Average home sales price made steady gains in the five major areas of LSTAR’s region. In London, the average sales price was $387,859 up 11.2% from last January, while it was $398,150 in Strathroy, an increase of 41.4% from January 2018.
“Looking at specific geographic areas, London North had an average of $477,615, up 18.1% from the same period last year,” Taylor said. “In London South (which also includes data from the west side of London) had an average sales price of $381,120 in January, up 6.6% compared to January 2018 and up 95.8% compared to just 10 years ago.”
The following chart is based on data taken from the CREA National MLS® Report for December 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. By LSTAR.
January Canadian Home Sales Improve
Statistics released today by the Canadian Real Estate Association (CREA) show that national home sales improved in January, climbing 3.6% from December ’18 to January ’19. Last year’s annual sales were the weakest since 2012.
As the chart below shows, national monthly home sales remain below their 10-year moving average and are decidedly lower than in the boom years of 2016 and 2017. Households are still adjusting to the tightened mortgage qualification rules introduced in January 2018. The number of homes trading hands was up from the previous month in half of all local markets, led by Montreal, Ottawa and Winnipeg.
Actual (not seasonally adjusted) sales were down 4% from year-ago levels and posted the weakest January since 2015. Year-over-year (y/y) sales were below the 10-year average for January on a national basis and in British Columbia, Alberta, Saskatchewan, Ontario and Newfoundland & Labrador.
Housing market conditions remain weakest in the Prairie region, and the Lower Mainland of B.C. Housing has been more fragile than the Bank of Canada expected, notwithstanding the tighter mortgage regulations combined with previous actions by provincial governments and CMHC to slow housing activity. The slowdown in housing has contributed meaningfully to the weakness in Canadian economic activity.
New Listings
The number of newly listed homes edged up 1% in January, led by a jump in new supply in Greater Vancouver and Hamilton-Burlington.
With sales up by more than new listings, the national sales-to-new listings ratio tightened to 56.7% compared to 55.3% posted in December. This measure of market balance has remained close to its long-term average of 53.5% for the last year.
Based on a comparison of the sales-to-new listings ratio with the long-term average, more than half of all local markets were in balanced market territory in January 2019.
There were 5.3 months of inventory on a national basis at the end of January 2019, in line with its long-term average. That said, the well-balanced national reading masks significant regional differences. The number of months of inventory has swollen far above its long-term average in Prairie provinces and Newfoundland & Labrador; as a result, homebuyers there have an ample choice of listings available for purchase. By contrast, the measure remains well below its long-term average in Ontario and Prince Edward Island, consistent with seller’s market conditions. In other provinces, sales and inventory are more balanced.
Home Prices
The Aggregate Composite MLS® Home Price Index (MLS® HPI) was up 0.8% y/y in January 2019 – the smallest increase since June 2018.
Following a well-established pattern, condo apartment units recorded the largest y/y price increase in January (+3.3%), followed by townhouse/row units (+1.5%). By comparison, two-storey single-family home prices were little changed (+0.1%) while one-storey single-family home prices edged down (-1.1%).
Trends continue to vary widely among the 17 housing markets tracked by the MLS® HPI. Results were mixed in British Columbia. Prices were down on a y/y basis in Greater Vancouver (-4.5%) and the Fraser Valley (-0.8%). By contrast, prices posted a y/y increase of 4.2% in Victoria and were up 9.3% elsewhere on Vancouver Island.
Among housing markets tracked by the index in the Greater Golden Horseshoe region, MLS® HPI benchmark home prices were up from year-ago levels in Guelph (+6.8%), the Niagara Region (+6.8%), Hamilton-Burlington (+6.4%), Oakville-Milton (+3.3%) and the GTA (+3%). Home prices in Barrie and District remain slightly below year-ago levels (-1.1%).
Among Greater Golden Horseshoe housing markets tracked by the index, MLS® HPI benchmark home prices were up from year-ago levels in Guelph (+7.2%), the Niagara Region (+7%), Hamilton-Burlington (+5%), Oakville-Milton (+3.9%) and the GTA (+2.7%). By contrast, home prices in Barrie and District remain below year-ago levels (-2.7%).
Across the Prairies, supply is historically elevated relative to sales, causing benchmark home prices to remain down from year-ago levels in Calgary (-3.9%), Edmonton (-2.9%), Regina (-3.8%) and Saskatoon (-2%). The home pricing environment will likely remain weak in these cities until elevated supply is reduced.
Home prices rose 7.1% y/y in Ottawa (led by a 9.5% increase in townhouse/row unit prices), 6.3% in Greater Montreal (led by a 9.2% increase in townhouse/row unit prices) and 1% in Greater Moncton (led by a 15.1% increase in townhouse/row unit prices). (see Table 1 below).
Bottom Line
The Bank of Canada meets again on March 6th and it is highly unlikely they will hike interest rates. The Canadian economy has been burdened with a weakened oil sector, reduced trade and a weak housing market. Although job growth has been stronger than expected, wage gains have moderated and inflation pressures are muted.
We are likely in store for a prolonged period of modest housing gains in the Greater Golden Horseshoe, stability or softening in much of British Columbia and further weakening in the Prairies, Alberta, and Newfoundland & Labrador.
Sluggish sales and modestly rising prices nationally are likely in prospect for 2019. While there will still be some significant regional divergences, there is no need for further policy actions to affect demand. Indeed, a growing chorus has been calling for lowering the mortgage qualification rate from the posted five-year fixed rate, currently 5.34%, to closer to the actual conventional rate, about 200 basis points lower.
Economic Highlight
Canadian jobs surge in January as jobless rate rises to 5.8%
January Data From Local Real Estate Boards
In separate releases, the local real estate boards in Canada’s largest housing markets released data this week showing home sales fell sharply in Vancouver, edged upward in Toronto and continued robust in Montreal. Overall, higher interest rates, the mortgage stress test and in the case of Vancouver, measures adopted a year ago by the BC and municipal governments still keep many buyers on the sidelines.
In Vancouver, home sales are in a deep slump, declining 39% year/year in January, though they were up 3% month/month. Sales in January were the weakest for that month since 2009–the depth of the financial crisis. Hardest hurt were sales of luxury properties.
The Vancouver benchmark price fell 4.5%, which was the most significant decline since the recession. The area’s composite benchmark price now has decreased by 7.7% since the cyclical peak in June 2018.
The number of listings rose sharply from a year earlier as sellers rushed to market fearing further price declines. In Vancouver, supply-demand conditions now favour buyers.
Toronto home sales edged higher in January, rising 0.6% year/year. Sales were up 3.4% compared to December 2018. The benchmark price rose 2.7% compared to January 2018. The condo apartment market segment continues to lead the price gains. Toronto area supply-demand conditions remain balanced.
Montreal saw a 15% year/year increase in sales last month. Demand remains robust as the number of active listings fell sharply. Benchmark prices of single-family homes increased 3% year/year, while condos prices rose 2%.
Montreal is now a highly desirable sellers’ market, which is especially true in the single-family home segment in direct contrast to the underperformance of that sector in the GVA and the GTA over the past year.
CMHC Says Overvaluation Decreasing But Housing Still ‘Vulnerable’
The Canada Mortgage and Housing Corporation (CMHC) said this week that the country’s overall real estate market remains ‘vulnerable’ despite an easing in overvaluation in cities like Toronto and Victoria in the third quarter of 2018. CMHC is using old data, as we already have numbers through yearend 2018 and preliminary data for January, all showing that overheating in Toronto and Vancouver has dissipated.
Many Calling for Mortgage Stress Test Review
Local real estate boards, mortgage professionals’ trade groups and some economists are calling for some relief on the stringency of the federal regulator’s mortgage stress test. According to Phil Moore, president of the Real Estate Board of Greater Vancouver, “Today’s market conditions are largely the result of the mortgage stress test that the federal government imposed at the beginning of last year. This measure, coupled with an increase in mortgage rates, took away as much as 25% of purchasing power from many homebuyers trying to enter the market.”
Economists at CIBC and BMO this week highlighted that the tightened qualification requirements for mortgage applicants had slowed activity measurably. While raising the qualification rate by 200 basis points might have made sense eighteen months ago, when housing markets were red hot in Vancouver and Toronto and interest rates were at record lows, we are in a very different place in the economic cycle today.
The Bank of Canada has raised the overnight benchmark policy rate by 75 basis points since the introduction of the new measures, which begs the question of whether 200 basis points is still the right number.
The Office of the Superintendent of Financial Institutions (OSFI) introduced the B20 rules in January 2018 aiming to thwart a credit bubble amid inflated household debt burdens and frothy housing markets. The new rules force people who want a new uninsured mortgage to demonstrate they can manage payments at rates two percentage points above what’s being offered by a lender. The new rules have been very effective in cooling household borrowing and reversing the gains in overheated housing markets.
Indeed, mortgage growth has shrunk to a 17-year low in Canada. Residential mortgage growth was posted at 3.1% in December from a year earlier, the slowest pace since May 2001, and half the growth rate of two years ago.
The slowdown in housing has had a material effect on the economy as a whole. Weakened economic growth has moved the Bank of Canada to the sidelines. While the Bank is now more cautious in jacking up the policy rate to a neutral level, the residential mortgage market is now–in a stress-test perspective–well into restrictive territory. For example, the Bank’s policy rate is at 1.75% (well below the 2.5% rate the BoC considers neutral), while posted mortgage rate used for stress testing is at 5.34%.
This week, OSFI defended the B20 rule suggesting that “The stress test is, quite simply, a safety buffer that ensures a borrower doesn’t stretch their borrowing capacity to its maximum, leaving no room to absorb unforeseen events.”
Canadian Job Market Surges in January
Statistics Canada released its January Labour Force Survey this morning showing employment increases of 66,800 versus expectation of merely a 5,000 job gain. The surge was led by record private-sector hiring and service sector jobs for youth. This is good news for an economy facing considerable headwinds in the oil sector, weakening housing activity, volatile financial markets and falling consumer confidence. If sustained, the strong employment data will ease some concerns about the length and depth of the current soft patch.
Even with the strength in job creation, the unemployment rate jumped 0.2 percentage points to 5.8% as more people looked for work–a sign of strength. This suggests there is more capacity in the economy before inflation pressures begin to mount–a big point for the Bank of Canada. Economic growth is now hovering around 1%, but the Bank of Canada expects it to recover to about a 2% pace in the second half of this year. The central bank will remain on the sidelines until it can verify that a rebound is occurring.
Wage gains remained depressed, a key indicator for the Bank. Average hourly wages were up 2% from a year ago, with pay for permanent employees up 1.8%.
Alberta, which has been flattened by slumping oil prices and production cuts, posted a second consecutive monthly decline in employment. Ontario led the job surge followed by Quebec.
Provincial Unemployment Rates
(% 2019, In Ascending Order)
By Dr. Sherry Cooper.  Chief Economist, Dominion Lending Centres
TREB joins chorus demanding B-20 repeal 
The Toronto Real Estate Board says B-20 needs to be “revisited” because, in addition to stymieing eager and otherwise qualified buyers, it’s harming the Canadian economy.
The CEO of TREB credited the government for taking action on key housing files, but admonished one of its agencies for implementing a stress test that, combined with rising interest rates, is disastrous for both buyers and the economy.
“One area that needs to be revisited is the imposition of the OSFI-mandated two percentage point mortgage stress test,” John DiMichele said in a statement. “While we saw buyers return to the market in the second half of 2018, we have to have an honest discussion on whether or not today’s homebuyers are being stress tested against rates that are realistic. Home sales in the GTA, and Canada more broadly, play a huge role in economic growth, job creation and government revenues each year. Looking through this lens, policymakers need to be aware of unintended consequences the stress test could have on the housing market and broader economy.”
Mortgage growth hit a 17-year nadir last year—the influence of B-20 writ large—but could the problem be an incoherent bureaucracy rather than modified underwriting guidelines?
“The most important thing to consider with the stress test is the intentions are pure—and that’s to protect the financial system and the housing market,” said Elan Weintraub, director of Mortgage Outlet. “The problem comes in the disjointed way in which it was executed because you have three government agencies—the Ontario government implemented the foreign buyer tax, then the Bank of Canada increased interest rates five times, which is disconnected from OSFI implementing the stress test. Everyone wants a strong housing market, but you have three government agencies without integrated policy implementation.”
The mortgage industry is no stranger to policymakers’ whims, but a history of intervention could pave the way to slightly more consumer-friendly adjustments. Frances Hinojosa believes now that the Toronto and Vancouver metropolitan areas have cooled, OSFI could, at the very least, entertain revising B-20.
“There should be some consideration done by the government to make amendments to the B-20 rules that will still uphold prudent lending guidelines,” said the Tribe Financial managing partner. “If there are any amendments to make, I think they may extend amortizations, which would allow millennials and first-time buyers to become homeowners a little earlier so that they can secure their financial futures.”
In fact, Carolyn Rogers, OSFI’s assistant superintendent of the regulation sector, recently told Bloomberg that the government agency might review B-20 if market conditions change. However, she wouldn’t open the door to rescinding the stress test.
“OSFI monitors the environment on a continual basis and when we determine that adjustments to our standards and guidelines are warranted, we make them.”  By Neil Sharma.
Mortgage Interest Rates
Prime lending rate is at 3.95%.  The Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates are on hold.  Some lenders are offering special promotional rates to try and take more market share.  Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages more attractive.
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. 
There is never a better time than now for a free mortgage check-up.  It makes sense to revisit your mortgage and ensure it still meets your needs and performs optimally.  Perhaps you’ve been thinking about refinancing to consolidate debt, purchasing a rental or vacation property, or simply want to know you have the best deal?  Whatever your needs, we can evaluate your situation and help you determine what’s the right and best mortgage for you.

 

7 Feb

RESIDENTIAL MARKET UPDATE

General

Posted by: Adriaan Driessen

Industry & Market Highlights 
Federal Policy Impacts on Canadian Housing Markets

Housing markets across Canada slowed significantly in 2018 as a result of higher interest rates coupled with mortgage stress tests and other policy changes that have constrained homebuying.

Mortgage Professionals Canada’s latest consumer research report, Annual State of the Residential Mortgage Market in Canada, examines the negative impacts of federal policies on housing markets across the country.

Report author and Mortgage Professionals Canada Chief Economist, Will Dunning, shares how policy changes are disqualifying potential first-time homebuyers and creating considerable pressure on the rental market, which is in turn driving rental prices higher. The reduction of activity in the housing market and extremely low rental vacancy rates have had significant consequences on homebuyers and renters, as well as employment and the overall economy.

The report illustrates that, as President and CEO Paul Taylor has discussed with policymakers, a more reasonable stress test level and lending restriction reforms are now needed to strike a better balance for borrowers and policymakers, improving housing affordability and Canada’s economy.  Read the FULL REPORT HERE.

2018 Q4 Data Now Available

Mortgage Professionals Canada and its Chief Economist Will Dunning produce monthly Housing Market Digests to provide a snapshot and trend analysis of the Canadian – and respective regional – housing markets, content that includes information around housing starts, the resale market, employment trends, interest rates, and more.

Get fourth quarter housing market information for Canada and each province including resale market data, housing stats, employment trends and interests rates from the latest Housing Market Digests here.

As goes housing, so goes the economy

The pundits have been saying for quite some time that the slowdown in Canada’s housing market is going to have a negative effect on the country’s Gross Domestic Product.  That prediction appears to have come true.

For the past several years housing has been one of the few things that has helped keep the economy afloat.  But it is now clear that rising interest rates and restrictive government policies are supressing the housing market.  The Bank of Canada estimates the slowdown in residential housing investment will represent a -0.1% hit to the overall economy.

It is not a big blow, but it crosses the line into negative territory.  Previous projections had residential housing investment continuing to make a positive contribution of +0.1%.

Many market insiders see this as proof that the federal B-20 guidelines are too heavy-handed and are having an unnecessarily harsh effect on home ownership.  They believe the market decline will take an even bigger bite out of GDP and that there is the real threat of a recession.

Now that it has been about 18 months since the BoC started raising its key interest rate, the effects of the increases are being felt in the greater economy.  Some forecasters predict other sectors are going to experience significant slowdowns as debt-laden consumers adjust to the higher cost of paying back their loans.

Housing: An early election issue 

Housing appears to be taking root as a key issue in upcoming federal election.

We got a preview of that when NDP leader Jagmeet Singh hinted at what an NDP government would do as he launched his campaign in a British Columbia by-election.

Singh was light on details but said his Party’s program would get 500,000 affordable housing units built over a 10 year period.  He also called for the elimination of the GST on the construction of affordable housing, and a doubling of the first-time buyer’s tax credit to $1,500.

In the 2015 election the current Liberal government came to power, in part, on a pledge to revamp Canada’s National Housing Strategy and entrench the “right to housing”.  It also promised to help the middle class and those working to join it.  Presumably that included making sure housing would remain affordable for those buyers.

Steps taken by the Liberals since then have fallen short according to critics and the political opposition.  More than a year ago the Liberals unveiled their $40 billion, 10-year strategy for housing and launched ongoing consultations.  But advocates say the government has gone quiet on the issue of the right to housing.  Many feel it is now too late to get legislation passed before Parliament rises in June, ahead of the October election.  The Liberals says they have spent nearly $6 billion building and repairing affordable housing, so far.

Overall housing affordability for the middle class also remains an unresolved concern.  Rising interest rates, taxes, fees and financial stress tests are seen by many as undue impediments to middle class home ownership.

A recent poll by Abacus Data suggests the price of housing is a top issue for millennials, who will outnumber baby boomers when Canadians vote in the fall.

Mortgage Professionals Canada is renewing its call for action to help millennials and other first-time buyers.  The association estimates government stress tests will have affected 200,000 families by the time the October election is held; having either reduced or completely eliminated their home purchasing power.

MPC has put forward a proposal that would make the current B-20 rules less onerous by reducing the stress test interest premium to just 0.75%, from the current 2.0%.

B-20 Guidelines for Private Mortgages  

A number of media outlets picked up a story published by Reuters that opened with:

Canada is considering subjecting private lenders to the same mortgage stress test rules faced by banks to prevent housing markets from being destabilized by the lenders’ rapid growth, three sources with direct knowledge of the matter said.

We contacted the Ministry of Finance directly for comment and were advised by a senior ministry official that these reports are unsubstantiated. The Ministry official confirmed that they are not currently considering any regulation of private lending. We were told to advise our membership that this article should not be interpreted as the ministry “sending a signal”.

The Ministry continues to monitor the mortgage marketplace, but at this time, any suggestion of the extension of B-20 Guidelines or equivalent to private lending is unsubstantiated.

Mortgage Professionals Canada continues to be in regular contact with the Ministry and government agencies and we will keep you informed should there be any change in this matter.

Economic Highlights

 

Weekly Bottom Line

Summary of recent economic events and what to expect in the weeks ahead.

U.S. Highlights

•Financial markets extended their gains this week. The re-opening of the U.S. government, the dovish FOMC statement, progress in the U.S.-China trade talks and a strong January payroll report all helped to boost sentiment.

•Global growth concerns persisted this week, but the U.S. economy continued to move along nicely. The labor market added 304k new jobs in January, and the ISM manufacturing index improved after a sharp decline in December.

•Even as domestic economic performance remains solid, global growth slowdown did not go unnoticed by the FOMC. The Committee left the fed funds rate unchanged, and went to great lengths to emphasize patience.

Canadian Highlights

•Canada’s economy contracted 0.1% in November as the energy sector weighed on growth. Real GDP is tracking a modest 1% (annualized) for the fourth quarter as a whole.

•A “patient” Federal Reserve will mean an even more patient Bank of Canada. Canada’s outlook is even cloudier than that stateside, providing numerous reasons for caution from the central bank.

•In a speech this week, Deputy Governor Wilkins noted that the oil shock is coming through not only on the unemployment rate but also the pace of wage growth. Until there is some clarity on the path of global growth, expect the Bank of Canada to remain on the sidelines.

Inflation: Just a blip on the radar  

Inflation has popped back onto the market watcher radar, but it does not appear to be much of a threat.

Statistic Canada’s headline number for December came in at 2%.  That increase was actually held in check by lower prices at the pumps.  With gasoline taken out, headline inflation jumped to 2.5%, year-over-year.  That seems like a significant increase given that November inflation clocked-in at 1.7% and the expectation for December was for the same, 1.7%.

The two big drivers of inflation were a nearly 30% increase in airfares and a 15% jump in the price of fruits and vegetables.  Both of these can be explained as seasonal variations, with the December spike in holiday travel and the usual wintertime reliance on imported produce.

The Bank of Canada is unlikely to be moved to make any interest rate adjustments though.  The average of its three measures of core inflation – which factor out volatile items like food and fuel – put the December rate at 1.9%.  That remains right in the middle of the Bank’s target range and is in line with its projections for 2019.

Of note to mortgage brokers, StatsCan also singled-out a 7.5% increase in mortgage interest rates as a factor in the jump in inflation.  However, that is proving to be something of a moot point as Canada’s big banks appear to be starting a round of cuts to their 5-year fixed rates.

Mortgage Interest Rates

Prime lending rate is 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates are on hold. Some lenders are offering special promotional rates to try and take more market share.  Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages very attractive.

Other Industry News & Insights
Roundup of the latest mortgage and housing news. 
From Mortgage Professionals Canada. 
There is never a better time than now for a free mortgage check-up.  It makes sense to revisit your mortgage and ensure it still meets your needs and performs optimally.  Perhaps you’ve been thinking about refinancing to consolidate debt, purchasing a rental or vacation property, or simply want to know you have the best deal?  Whatever your needs, we can evaluate your situation and help you determine what’s the right and best mortgage for you.
18 Jan

RESIDENTIAL MARKET UPDATE

General

Posted by: Adriaan Driessen

Industry & Market Highlights 
CMHC
The Bank of Canada left the overnight benchmark policy rate at 1-3/4%, as expected. In another dovish statement, the Bank of Canada acknowledged a slowdown in global economic activity and highlighted that oil prices are roughly 25% lower than what they had assumed in the October Monetary Policy Report (MPR). The lower prices primarily reflected sustained increases in U.S. oil supply and increased worries about global demand, especially in light of a potential U.S.-China trade war (see oil chart below).
The Bank also commented that these worries had been mirrored in bond and stock markets. Credit spreads off Treasuries have widened, and stock markets have sold off around the world (see chart below). Equity prices and bond yields have declined in the face of market unease over global growth. Volatility has risen, and corporate credit spreads have widened sharply. A tightening of corporate credit conditions is particularly evident in the North American energy sector reflecting the decline in oil prices.
Weak oil prices negatively impact the Canadian economic outlook and “transportation constraints and rising production have combined to push up oil inventories in the west and exert even more downward pressure on Canadian benchmark prices. While price differentials have narrowed in recent weeks following announced mandatory production cuts in Alberta, investment in Canada’s oil sector is projected to weaken further.”
The Bank acknowledged that the economy is running close to potential, unemployment is at a 40-year low and trade will likely improve with the weak dollar, the trade deal with Mexico and the U.S. (now dubbed “CUSMA”) and federal tax measures to target investment. Nevertheless, consumer spending and housing investment “have been weaker than expected as housing markets adjust to to municipal and provincial measures, changes to mortgage guidelines, and higher interest rates. Household spending will be dampened further by slow growth in oil-producing provinces.”
The contribution to average annual real economic growth from housing investment has been revised down to -0.1% this year from the +0.1% forecast in October.
The Bank of Canada revised down its forecast for real GDP growth in 2019 to 1.7%–0.4 percentage points lower than the October outlook. According to the Bank, “This will open up a modest amount of excess capacity, primarily in oil-producing regions. Nevertheless, indicators of demand should start to show renewed momentum in early 2019, leading to above-potential growth of 2.1% in 2020.”
Inflation remains close to 2%, the central bank’s target, having fallen to 1.7% in November, due to lower gasoline prices. While low gasoline prices will depress inflation this year, the weak Canadian dollar will have an offsetting impact on the CPI. On balance, the bank sees inflation returning to around 2% by late this year.
Considering all of these factors, the Governing Council continues to judge that the benchmark policy rate will need to rise over time to a neutral range to achieve the inflation target. “The appropriate pace of rate increases will depend on how the outlook evolves, with a particular focus on developments in oil markets, the Canadian housing market, and global trade policy.”
Bottom Line: The Bank of Canada for the first time admits in today’s MPR that the slowdown in the housing market has been more dramatic than the Bank’s staff had expected. The January MPR states, “provincial and municipal housing market policies, the tighter mortgage finance guidelines and higher mortgage rates continue to weigh on housing activity. Slowing of activity in some markets has been associated with less speculative activity. As a result, it is difficult to evaluate the sensitivity of non-speculative demand to the various policy changes. Monthly indicators have signalled that spending on housing likely contracted again in the fourth quarter. Weaker-than-expected housing activity in recent months and staff analysis suggest that the combined effect of tighter mortgage guidelines and higher interest rates has been larger than previously estimated. The Bank will continue to monitor developments in housing markets to assess how construction is adjusting to the shift in demand toward lower-value units.”
The Bank see less urgency to raise interest rates as the economy copes with slumping oil prices and weak housing markets. The five interest rate hikes since mid-2017 are having a more substantial impact on spending than the Bank expected. A short-term pause in rate hikes is now likely. The economy slowed considerably in the fourth quarter of last year, which will continue in the first quarter of this year owing to the decline in oil prices and the Alberta government’s implemented oil production cuts.
While it is unlikely that the Bank is finished its tightening this cycle, expect rates to remain steady until we see solid evidence of a rebound in the oil sector and in housing as interest-rate sensitivity of Canadians is at historical highs.
Real Estate Statistics for December 2018 London St. Thomas  
London and St. Thomas Association of REALTORS® (LSTAR) announced 439 homes* were sold in December, up 2.1% over December 2017 and right on par with the 10-year average. The number of home resales for the year was 9,799, down 13.3% compared to 2017, which set a record year for residential real estate.
“One of the trends that stood out in December was the sales-to-new listings ratio, which was 108.1% across the region,” said Jeff Nethercott, 2018 LSTAR President. “It’s a statistic the Canadian Real Estate Association (CREA) says represents conditions in the marketplace that favour sellers (a ratio between 40% and 60% is generally consistent with a balanced market). In London, the sales-to-new listings ratio was 119.7%, while in St. Thomas it was 100.0%.”
December also saw average home sales price make steady gains in LSTAR’s jurisdiction. In London, the average sales price was $375,782, up 13.4% from last December, while it was $304,079 in St. Thomas, an increase of 0.7% from December 2017.
“Looking at specific areas, London South (which also includes data from the west side of the city) had an average sales price of $421,044 in December, up 16.2% compared to the same period last year and achieving its highest average sales price in the last 10 years,” Nethercott said. “In London North, the average sales price was $426,831, up 16.6% from December 2017, while in London East it was $284,100, up 7.0% compared to last December.”
“Overall, it was a very solid year for home resales in London and St. Thomas,” Nethercott said. “The activity in 2018 performed well above the 10-year average, despite the record low inventory levels seen in the marketplace the entire year. As we kick off 2019, I believe home sales will continue to be strong and be a driving force to the local economy.”
The following chart is based on data taken from the CREA National MLS® Report for November 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.
By The London and St. Thomas Association of REALTORS® (LSTAR).
CMHC 
Statistics released by the Canadian Real Estate Association (CREA) show that national home sales dipped for the fourth consecutive month, down 2.5% from November to December, capping the weakest annual sales since 2012. According to last week’s Bank of Canada Monetary Policy Report, housing activity in Canada has fallen by more than the Bank’s economists had expected owing to tighter mortgage-qualification restrictions and rising interest rates.
Monthly declines in home sales since September have fully reversed their summer rally and returned monthly sales to near their lowest level since early 2013.
Transactions declined in about 60% of all local markets in December, led by lower activity in Greater Vancouver, Vancouver Island, Ottawa, London & St. Thomas, and Halifax-Dartmouth, together with a regionally diverse mix of other large and medium-sized urban centres.
On a not seasonally adjusted basis, actual activity was down 19% year-over-year in December 2018 and stood almost 12% below the ten-year average for the month. Sales were down from year-ago levels in three-quarters of all local markets, led overwhelmingly by the Lower Mainland of British Columbia, the Okanagan Region, Calgary, Edmonton, the Greater Toronto Area and Hamilton-Burlington. Sales had been boosted in December 2017 by homebuyers rushing to purchase before the new federal mortgage stress test took effect at the beginnng of this year.
The Bank of Canada forecasts that the housing market will remain soft this year, undermining economic growth as the mortgage stress test has rendered housing unaffordable for many potential homebuyers.
New Listings
The number of newly listed homes remained little changed (+0.2%) from November to December, with declines in close to half of all local markets offset by gains in the remainder.
With sales down and new listings steady in December, the national sales-to-new listings ratio eased to 53.3% compared to 54.8% in November. This measure of market balance has remained close to its long-term average of 53.5% since the beginning of 2018.
Based on a comparison of the sales-to-new listings ratio with the long-term average, about two-thirds of all local markets were in balanced market territory in December 2018.
There were 5.6 months of inventory on a national basis at the end of December 2018. While this remains close to its long-term average of 5.3 months, the number of months of inventory has swollen far above its long-term average in Prairie provinces as well as in Newfoundland & Labrador. By contrast, the measure remains well below its long-term average in Ontario and Prince Edward Island. In other provinces, sales and inventory are more balanced.
Home Prices
The Aggregate Composite MLS® Home Price Index (MLS® HPI) was up 1.6% y/y in December 2018. The increase is smaller but still broadly in line with y/y gains posted since July.
Following a well-established pattern, condo apartment units posted the largest y/y price gains in December (+4.9%), followed by townhouse/row units (+3.1%). By comparison, two-storey single-family homes posted a small increase (+0.4%) while one-storey single-family home prices eased slightly (-0.3%).
Trends continue to vary widely among the 17 housing markets tracked by the MLS® HPI. Results were mixed in British Columbia. Prices are now down on a y/y basis in Greater Vancouver (-2.7%) but remain above year-ago levels in the Fraser Valley (+2.5%). Meanwhile, prices posted a y/y increase of 6.4% in Victoria and rose 11% elsewhere on Vancouver Island.
Among housing markets tracked by the index in the Greater Golden Horseshoe region, MLS® HPI benchmark home prices were up from year-ago levels in Guelph (+6.8%), the Niagara Region (+6.8%), Hamilton-Burlington (+6.4%), Oakville-Milton (+3.3%) and the GTA (+3%). Home prices in Barrie and District remain slightly below year-ago levels (-1.1%).
Across the Prairies where supply is historically elevated relative to sales, benchmark home prices remained below year-ago levels in Calgary (-3.2%), Edmonton (-2%), Regina (-5.2%) and Saskatoon (-1.2%). The home pricing environment is likely to remain weak in these housing markets until elevated supply reflective of the weak oil market is reduced and becomes more balanced in relation to demand.
Home prices rose 6.9% y/y in Ottawa (led by an 8.3% increase in townhouse/row unit prices), 6% in Greater Montreal (driven by a 9.1% increase in townhouse/row unit prices) and 2.5% in Greater Moncton (led by a 12.2% increase in townhouse/row unit prices). (Table 1, unfortunately, CREA did not update the table with December data as of this writing).
Bottom Line
We are likely in store for a prolonged period of modest housing gains in the Greater Golden Horseshoe, stability or softening in British Columbia and further weakening in the Prairies, Alberta, and Newfoundland & Labrador.
Sluggish sales and modestly rising prices nationally are likely in store for 2019. While there will still be some significant regional divergences, there is no need for further policy actions to affect demand.
By Dr. Sherry Cooper.  Chief Economist, Dominion Lending Centres
Economic Highlights

 

Canadian Jobs Market Remains Tight in December, but Wage Growth Disappoints
Statistics Canada released its December Labour Force Survey this morning showing modest job gains and an unemployment rate that remains at a record-low 5.6%. The economy generated 9,300 net new jobs in December, a small increase following a record 94,100 jump in the prior month. However, December’s rise beat economists’ expectations of 5,500 jobs and a jobless rate of 5.7%. All of the tepid increase last month was in part-time and self-employment, a general sign of weakness. Full-time work fell in December for the first time in three months, and wages remained sluggish.
In December, employment rose in Newfoundland and Labrador, while it fell in Alberta, New Brunswick and Prince Edward Island. There was little change in net new jobs in other provinces.
Increases were recorded in manufacturing, transportation and warehousing, as well as in health care and social assistance. There were job losses in wholesale and retail trade, especially in Ontario.
For all of 2018, the economy added 163,300 jobs, all of them full-time, for a 0.9% rise representing a significant slowdown from the pace of job growth in 2017 when the economy was much stronger. In 2017, the economy grew at a 3% rate–the strongest in the G7–compared to only about 2% last year. Employment rose by an out-sized 427,300 in 2017 and has average annualized gains of 225,000 workers since 2010.
With the unemployment rate falling to its lowest level since comparable data collection began in January 1976, it is not surprising that labour shortages are emerging and businesses are having trouble filling job openings. What is surprising is the tepid pace of wage growth. Even with the very tight labour market, December’s wage growth reading was a weak 1.49% annual rate, well below the inflation rate (see chart below). Year-over-year average hourly wage growth for permanent workers was only 1.46%, decelerating steadily since its May peak of 3.9%.
In direct contrast, today’s release of nonfarm payroll data in the U.S. for December showed a stellar 312,000 job gain, and average hourly pay improved 3.2% from a year ago–well above the inflation rate–and up from average wage growth of 2.7% at the end of 2017.
December Housing Reports Show Plummeting Home Sales in 2018 in Toronto and Vancouver
In separate releases, the local real estate boards in Canada’s largest housing markets released data this week showing home sales fell to decade lows in 2018 reflecting rising interest rates and stricter mortgage rules.
Sales in the GTA fell 16% in 2018 while the average price declined 4.3%, the Toronto Real Estate Board reported today. That is the worst year for sales in Canada’s largest city since the financial crisis in 2008. In Vancouver, full-year sales fell 32%, the lowest since 2000 and 25% below the 10-year average. Prices in Vancouver for detached homes in some areas dropped at least 10%.
Sales in both cities dived in the first half of 2018 after the federal government imposed more stringent qualifying rules for mortgages. Vancouver sales continued to suffer even while Toronto began to recover in the second half, as the British Columbia government introduced more measures to deter speculation. The BC government in its 2018 budget increased the foreign buyers’ tax and added a speculation tax, which in addition to rising interest rates dampened sales, especially for more expensive single-family homes.
New listings were down in Toronto last month as homeowners have decided to stay put for now rather than attempting to cash out.  By Dr. Sherry Cooper. Chief Economist, Dominion Lending Centres
Mortgage Interest Rates
Prime lending rate is 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates are on hold.  A few lenders are brining out special promotional lower fixed rates to try and increase market share. Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages very attractive.
Other Industry News & Insights
Roundup of the latest mortgage and housing news. 
From Mortgage Professionals Canada. 
There is never a better time than now for a free mortgage check-up.  It makes sense to revisit your mortgage and ensure it still meets your needs and performs optimally.  Perhaps you’ve been thinking about refinancing to consolidate debt, purchasing a rental or vacation property, or simply want to know you have the best deal?  Whatever your needs, we can evaluate your situation and help you determine what’s the right and best mortgage 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
Lori Richards Kovac
Mortgage Agent & Administrator
Dominion Lending Forest City Funding 10671
Cell:     519.852.7116
Fax:      519.518.1081
415 Wharncliffe Road South
London, ON, N6J 2M3
Adriaan Driessen
Sales Representative & Senior Partner
PC275 Realty Brokerage
Cell:     519.777.9374
Fax:      519.518.1081
415 Wharncliffe Road South
London, ON, N6J 2M3

 

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

24 Dec

Residential Market Update

General

Posted by: Adriaan Driessen

WEEKLY RESIDENTIAL  MARKET UPDATE 

Industry & Market Highlights 

Behind Us – Ahead of Us  

Thank you for a wonderful and crazy year.  It is a privilege to be part of your beautiful lives.  Wishing you and your loved ones a wonderful Christmas holiday season and a prosperous new year!

End of the year is a great time to reflect on the year behind us, to consider our victories and our losses, and to plan for what lies ahead of us.  If have not yet set you business plan for 2019, now is the time.   If you fail to plan, you plan to fail.  Plan your success, and work your plan!

 

2018 Year in Review – The Year Everything Changed

Every year, somewhat controversial economist David Collum writes a detailed “Year in Review” synopsis full of keen perspective and plenty of wit. This year’s is no exception.  It’s a long post and a very interesting read with loads of good information.  Read the full article here.  A downloadable pdf of the full article is available here.  He got one thing wrong with this statement: “We’re all doomed to burn in eternal hell, but I can only say that so many years in a row before it starts getting old.”  Here’s something way more important that he missed. The eternal lake of fire is reserved for those who oppose and reject their free gift or redemption and salvation of their eternal souls.  Then He will say to those on his left, ‘Depart from me, you who are cursed, into the eternal fire prepared for the devil and his angels.  It was also about these that Enoch, the seventh from Adam, prophesied, saying, “Behold, the Lord comes with ten thousands of his holy ones, to execute judgment on all and to convict all the ungodly of all their deeds of ungodliness that they have committed in such an ungodly way, and of all the harsh things that ungodly sinners have spoken against him.”  But to all who did receive him, who believed in his name, he gave the right to become children of God.  For God so loved the world that he gave his one and only Son, that whoever believes in him shall not perish but have eternal life.  The Roman Empire got the birth of Christ Jesus wrong when they incorporated Christ mass into traditional pagan festivals celebrated on December 25th.  His Actual birth is estimated to be in early April 4-6 BC based on historical accounts.  Reach out to me if you have questions about this.

 

A softened stance on future rates hikes

Back in October it was “clear sailing, all ahead full”.  Now the forecast is calling for headwinds and choppy seas and poor visibility.

When the Bank of Canada bumped its trend setting rate to 1.75% the economic statement spoke of full capacity, full employment, growing wages and rising inflation.  The Bank and market watchers were confident interest rates would continue their measured, upward march.

But that straight path has taken a turn, and in December the BoC did not move up, it stepped aside.

In the main, the central bank is being dictated by international developments.  Expanding trade disputes, obstructive tariffs and falling oil prices are weighing on the Canadian economy.  The uncertainty has led to a pull-back in business investment and projections for GDP growth have been reduced.

The Bank has shifted away from saying the economy is operating “at” capacity and is now being vaguer, saying the indicators show the economy is operating at “close” to capacity.  In the language of central bankers that is a very wide gap.

The Bank of Canada has also softened its stance on future rate hikes.  It had been saying rates would have to climb to their neutral level – neither stimulating nor retarding the economy.  Now it says rates will have to rise into the neutral range.  The Bank is not saying what that range is, only that we will know it when we see it.  Given the inflation forecast we may be much closer to that range than previously thought.  By First National Financial. 

 

No mandatory home energy audits  

Final nail in the coffin of mandatory home energy audits.   Mandatory home energy audits were a costly program proposed by the previous government that would have cost home sellers thousands of dollars in equity and punished REALTORS® – forcing you to post results of your clients’ energy audit on MLS® before you could list a property.

Premier Doug Ford announced at the Ontario REALTOR® Party Conference that the Ontario government has officially put an end to the program. He also called OREA a trusted advisor, complimented real estate professionals in general and sent a clear message that his Government values affordable home ownership for families across Ontario.

This is another big government relations win for REALTORS® that protects the dream of home ownership in Ontario!  By OREA Ontario Real Estate Association. 

 

Economic Highlights

 

CMHC  

Statistics released today by the Canadian Real Estate Association (CREA) show that national home sales dipped for the third consecutive month, down 2.3% from October to November and down a whopping 12.6% year-over-year. Transactions declined in just over half of all local markets, with lower activity in the Greater Toronto Area (GTA), the Greater Vancouver Area (GVA) and Hamilton-Burlington offsetting increased sales in Edmonton. Sales were down from year-ago levels in three-quarters of all local markets, including the Lower Mainland of British Columbia, Calgary, the GTA and Hamilton-Burlington.

These data suggest a double-digit national sales decline in 2018, falling to its lowest level in five years even though the economy is reaching full employment. Next year’s growth in sales and prices will likely be moderated by recent policy changes from different levels of government, in addition to upward pressure on interest rates.

Many had expected a rebound in sales in British Columbia, but so far it has not materialized. The rebound in sales in Ontario last summer has now run its course and activity in Alberta has edged lower. Housing transactions in Quebec, in contrast, were strong.

New Listings

The number of newly listed homes fell by 3.3% between October and November, with new supply declining in roughly 70% of all local markets.

With new listings having declined by more than sales in November, the national sales-to-new listings ratio tightened slightly to 54.8% compared to 54.2% in October. This measure of market balance has remained close to its long-term average of 53.4% since the beginning of 2018.

Based on a comparison of the sales-to-new listings ratio with the long-term average, about 60% of all local markets were in balanced market territory in November 2018. There were 5.4 months of inventory on a national basis at the end of November 2018. While this remains in line with its long-term average of 5.3 months, the number of months of inventory is well above its long-term average in the Prairie provinces as well as in Newfoundland & Labrador. By contrast, the measure is well below its long-term average in Ontario, New Brunswick and Prince Edward Island. In other provinces, sales and inventory are more balanced.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) was up 2.3% y/y in October 2018, down once again on a month-over-month basis.

Following a well-established pattern, condo apartment units posted the largest year-over-year price gains in November (+6%), followed by townhouse/row units (+4%). By comparison, one-storey single-family homes posted a modest increase (+0.4%) while two-storey single-family home prices held steady (+0.1%).

Trends continue to vary widely among the 17 housing markets tracked by the MLS® HPI. In British Columbia, home price gains have been steadily diminishing on a y/y basis in the Fraser Valley (+4.7%) and Victoria (+7.2%). By contrast, price gains picked up elsewhere on Vancouver Island (+12.6%) and, for the first time in five years, were down (-1.4%) from year-ago levels in the GVA. On a month-over-month basis, prices fell 1.9% in Greater Vancouver in November, the most since 2008, adding to the recent series of price declines in Canada’s most expensive housing market.

Among housing markets tracked by the index in the Greater Golden Horseshoe region, MLS® HPI benchmark home prices were up from year-ago levels in Guelph (+9.3%), the Niagara Region (+7.2%), Hamilton-Burlington (+6.3%), Oakville-Milton (+3.4%) and the GTA (+2.7%). Meanwhile, home prices in Barrie and District remain below year-ago levels (-2.1%).

Across the Prairies, benchmark home prices remained below year-ago levels in Calgary (-2.9%), Edmonton (-1.9%), Regina (-4%) and Saskatoon (-0.3%). Excess supply of listings relative to demand will continue to put downward pressure on prices until economic activity in the region strengthens.

In contrast, home prices rose 6.6% y/y in Ottawa (led by a 7.3% increase in two-storey single-family home prices), 6.2% in Greater Montreal (driven by a 9.4% increase in townhouse/row unit prices) and 4.2% in Greater Moncton (led by an 11.2% increase in townhouse/row unit prices). (Table 1)

The actual (not seasonally adjusted) national average price for homes sold in November 2018 was just over $488,000, down 2.9% from the same month last year.

Sales in Greater Vancouver and the GTA, two of Canada’s most active and expensive markets, bias upward heavily skew the national average price. Excluding these two markets from calculations cuts almost $110,000 from the national average price, trimming it to just over $378,000.

Bottom Line

We are likely in store for a prolonged period of modest housing gains in the Greater Golden Horseshoe, stability or softening in British Columbia and further weakening in the Prairies, Alberta, and Newfoundland & Labrador.

The Canadian housing market has slowed considerably since mid-2017 and is ending the year on a quiet note. Two offsetting forces are impacting housing—strong population growth and rising rates. Sluggish sales and modestly rising prices nationally are likely in store for 2019. While there will still be some significant regional divergences, there is no need for further policy actions to affect demand.  By Dr. Sherry Cooper.  Chief Economist, Dominion Lending Centres. 

 

Mortgage Interest Rates

Prime lending rate is 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates are on hold.  Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages very attractive.

Other Industry News & Insights

Roundup of the latest mortgage and housing news.

From Mortgage Professionals Canada.

There is never a better time than now for a free mortgage check-up.  It makes sense to revisit your mortgage and ensure it still meets your needs and performs optimally.  Perhaps you’ve been thinking about refinancing to consolidate debt, purchasing a rental or vacation property, or simply want to know you have the best deal?  Whatever your needs, we can evaluate your situation and help you determine what’s the right and best mortgage 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 & Senior Partner

PC275 Realty Brokerage

Cell:     519.777.9374

Fax:      519.518.1081

adriaan@pc275.com

www.PC275.com

415 Wharncliffe Road South

London, ON, N6J 2M3

12 Dec

RESIDENTIAL  MARKET UPDATE 

General

Posted by: Adriaan Driessen

Industry & Market Highlights 

Bank of Canada key interest rate announcement

The Bank of Canada left its key interest rate unchanged, as expected, at 1.75 per cent.

This announcement came in the wake of a move by the Alberta government to curtail oil production in the province after Jan. 1 to try to clear a crude storage glut that has driven western Canadian oil prices to multi-year lows.

Meanwhile, the recently announced plan to close the General Motors of Canada car plant in Oshawa similarly offers a downside risk to future growth.

Bank economists say an unexpected dip in monthly gross domestic product figures in September and lower-than-expected oil prices so far in the fourth quarter have dampened growth expectations and placed in doubt forecasts for a January bank rate increase.

Lower growth prospects are expected to reinforce Bank of Canada Governor Stephen Poloz’s strategy of moving very gradually on increases to its overnight rate.

Economists say they will be closely watching Poloz’s speech on Thursday for signs of how events are affecting his view of the path forward.  By The Canadian Press.

  

LSTAR’s News Release for November 2018 – Strong Home Sales Continue in November 

London and St. Thomas Association of REALTORS® (LSTAR) announced 746 homes* were sold in November, up 6.7% over November 2017. The number of home resales was the second highest total ever for November since LSTAR began tracking data in 1978. November 2016 holds the record with 749 home resales, only three more than November 2018.

“In November, we saw more positive signs with new listings in the marketplace, which contributed to the robust sales activity,” said Jeff Nethercott, 2018 LSTAR President. “November had 898 new listings, an increase of 17.5% over the same month last year. The area of London East continues to be making healthy gains in both new listings and average sales price. It had 192 new listings, up 24.7 % from November 2017, where the average sales price was $302,737, up 18.7% from 2017 and up 58.9% compared to five years ago. Going back further, that’s up 75.0% compared to 10 years ago.”

Average sales price also made steady gains in the major geographic areas in London. In London North, the average sales price was $482,202, up 24.4% from last November and up 62.4% compared to the same month five years ago. It’s an increase of 98.7% compared to the average sales price in 2008.

“Similar to October, we saw inventory (what is called active listings) making slight gains, despite the overall record low inventory that dominated our marketplace this year,” Nethercott said. “Last month, LSTAR’s jurisdiction had 1,391 active listings, up 7.6% from November 2017. The sales-to-new listings ratio was 83.1%, which the Canadian Real Estate Association (CREA) says represents conditions in the marketplace that favour sellers (a ratio between 40% and 60% is generally consistent with a balanced market). Looking at the major centres, St. Thomas had the highest sales-to-new listings ratio at 97.0%.”

A total of 65 homes were sold in November, up 10.2% from November 2017. The average home sales price in St. Thomas was $304,618 up 13.1% from a year ago and up 43.5% compared to five years ago. It’s also up 78.6% from 10 years ago.

The following chart is based on data taken from the CREA National MLS® Report for October 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 each time a home changes hands in Ontario. “It’s turning out to be another exceptional year for real estate across London and St. Thomas,” Nethercott said. “The business of real estate touches every layer of our regional economy, with November resale activity generating potentially more than $39 million and helping create approximately 248 jobs. The impact to economic growth is priceless.”

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 December 1, 2018, based on processed home sales activity between November 1 and 30, 2018.

Predictions on a Cooling Down of the Real Estate Market 

For the first time since 2007 we are seeing an inverted Bond Yield Curve, and indicator that a potential bear market is ahead for stock markets and a cooling of other related markets.  Join Mike Maloney as he reveals an important factor of the partial Yield Curve inversion that is being ignored by mainstream news and media. Then stick around to the end of the video to see yet another indicator that is suggesting a huge change in markets could be upon us.  You can watch a full presentation by Mike Maloney HERE.

CMHC Announced that the cooling down of the Real Estate Market is finally here and predict that we will see house prices and mortgage rates moderate throughout 2019 into 2020.  Many economists have been claiming the prime rate increases (currently at 3.95%) are only cooling down the remainder of an extremely hot real estate housing market. Hopefully in London the pressure of having multiple offers are soon behind us.  Read more on CMHC Announcement HERE.

CIBC economist Benjamin Tal explains we are nearing comparable times to what the markets were like from 2007 to 2008 with the inverted bond. What does inverted bonds mean? This is where the 10 year fixed is almost side by side to the 5 year fixed. For example, today a 5 year conventional fixed rate is close to 3.94% and some banks have a 10 year special at 4.19% much like the fixed rates in 2007 where the 5 year was 5.65% and the 10 year fixed 5.75%. If you recall, in 2008 we saw the lower term products, 3-5 year fixed, quickly decrease.

In summary, CMHC and the economists say that everything is stabilizing and much like the past, we could even see some decreases on low term rates and also decreases to the prime rate and variable rate/Line of credit products.

Read Benjamin Tal’s market forecast HERE.

Economic Highlights

Canada’s Employment Numbers

Canada’s November employment numbers were stunning.  Economists had projected about 10,000 new jobs.  The economy created an amazing 94,000 jobs for the month, most of them full time.  The unemployment rate dropped to 5.6%, down 2 basis points from October and down 3 bps from a year ago.

Numbers like that usually set the stage for a lot of speculation about more interest rate hikes by the Bank of Canada, but not this time.

Two key details suggest the economy is not as robust as the headline employment number might suggest.

1Youth participation in the work force is down

2Wage growth continues to slow

For October and November the number of young people, aged 15 to 24, who wanted to work and who were employed sat at 62.5%.  That is the lowest level since 1998.  It is an indication that employers are not having any trouble finding the older, experienced help they want, suggesting there is still slack in the economy and labour pool.

Hourly wage growth, which is a key driver of inflation – which is, in turn, a key trigger for interest rate increases – came in at just 1.7% in November, compared to a year ago; the 6th straight monthly decline for wage growth.  It indicates the labour market is weaker than it appears and employers are not being compelled to raise wages to attract workers.

Then there is what the Bank of Canada, itself, is saying.  While the language used by central bankers can be downright cryptic, once you decipher what is in the economic statement that came with the latest interest rate decision it sounds a lot like “we’re just going to keep an eye on this for the time being.”  By First National Financial.

Bank of Canada’s Dovish Tone  

As was universally expected, the Bank of Canada’s Governing Council held overnight interest rates steady at 1-3/4% as it heralded a weaker outlook for the Canadian economy. The dovish tone in today’s Bank of Canada statement is in direct contrast to its attitude when it last met on October 24. Since that time, the global economy has moderated, and oil prices have fallen sharply. Troubling prospects for Alberta’s energy sector have weighed on the economy as the U.S. has expanded shale oil production. Benchmark prices for “western Canadian oil–both heavy and, more recently, light–have been pulled down even further by transportation constraints and a buildup of inventories”. The Notley government in Alberta ordered production cuts this week leading the Bank to conclude that Canada’s energy sector will be “materially weaker” than expected.

The Canadian economy grew at a 2% annual rate in the third quarter, mainly in line with the Bank’s expectation, however, September data suggest significantly less momentum going into Q4. The biggest disappointment was the plunge in business investment, which likely reflected trade uncertainty (see chart below). Business investment outside of the oil sector is likely to improve with the signing of the new trade agreement USMCA, the new federal tax measures to improve capital depreciation write-offs, and ongoing capacity constraints.

Household credit appears to be stabilizing following a significant slowdown in recent months. However, the rise in interest rates this year has had a more substantial impact on credit-sensitive spending than many had expected. For example, plunging car sales add to evidence that higher borrowing costs are dampening economic activity possibly to a more significant extent than the central bank expected. Light vehicle sales dropped 9.4% in November, the most since 2009. As well, Bank of Canada data show growth in residential mortgages decelerated to 1.4% in September on an annualized three-month basis, the weakest pace since 1982.

The Bank has raised borrowing costs five times since July 2017. New home building declined for the third consecutive quarter, down an annualized 5.9% in Q3. Moreover, according to the Toronto Real Estate Board (TREB), Toronto’s housing market posted its biggest monthly sales decline since March while prices remained little changed. Sales in Canada’s largest city fell 3.4% in November from the previous month TREB reported today (see chart below).

The housing market in the Toronto region has been stabilizing after a slowdown in sales and prices earlier this year amid more stringent mortgage-lending rules. The market picked up its pace through the summer, though sales have declined for the third month in a row.

The drop in sales could in part be attributed to a decline in new listings, which fell 26% year-over-year. “New listings were actually down more than sales on a year-over-year basis in November,” Garry Bhaura, the president of the board, said in a statement. “This suggests that, in many neighbourhoods, competition between buyers may have increased. Relatively tight market conditions over the past few months have provided the foundation for renewed price growth.”

Here is a sampling of other factors that highlight some of the headwinds confronting the Canadian economy:

Economic data have been coming in below expectations according to Citibank’s Surprise Index, which tracks the difference between market expectations for economic indicators and their actual values. This index has trended downward since last summer and has been below zero since mid-October–around the time of the Bank of Canada’s last Monetary Policy Report (MPR) and the most recent rate hike.

The Macdonald Laurier Institute’s Leading Indicator fell 0.1% in October. The composite gauge’s first decline since January 2016 was primarily driven by a pullback in S&P/TSX Composite Index, which fell 6.5% on the month, as well as marked decreases in commodity prices.

As well, inflation pressures have diminished. For example, gasoline prices have tumbled by about 25 Canadian cents back toward a dollar a litre since October. The latest policy statement says, “CPI inflation, at 2.4% in October, is just above target but is expected to ease in coming months by more than the Bank had previously forecast, due to lower gasoline prices. Downward historical revisions by Statistics Canada to GDP, together with recent macroeconomic developments, indicate there may be additional room for non-inflationary growth. The Bank will reassess all of these factors in its new projection for the January MPR.”

Bottom Line: “Governing Council continues to judge that the policy interest rate will need to rise into a neutral range to achieve the inflation target,” the bank said in the statement, adding the appropriate pace of increases will depend on the “effect of higher interest rates on consumption and housing, and global trade policy developments.”

“The persistence of the oil price shock, the evolution of business investment, and the Bank’s assessment of the economy’s capacity will also factor importantly into our decisions about the future stance of monetary policy,” the bank said.

As recently as October, investors were expecting at least three more rate hikes in 2019. Currently, those expectations have lessened to no more than two. The Bank had previously estimated the “neutral” range for overnight rates at between 2.5% and 3.5%. Today’s more dovish statement might well indicate that rate hikes over the next year will be to levels well below this neutral range.  By Dr. Sherry Cooper.  Chief Economist, Dominion Lending Centres.

Mortgage Interest Rates

Prime lending rate is 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates are on hold.  Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages very attractive.

This edition of the Weekly Rate Minder shows the latest rates available for Canadian mortgages. At Dominion Lending Centres, we work on your behalf to find the best possible mortgage to suit your needs.

Explore mortgage scenarios using helpful calculators on my website: http://www.iMortgageBroker.ca

Other Industry News & Insights

Roundup of the latest mortgage and housing news.

From Mortgage Professionals Canada.

Canada’s new construction housing market could be hit a wall, thanks to higher interest rates: TD (Livabl)

The Ford government wants to develop the Ontario Greenbelt. Here’s why one expert thinks that’s a bad idea (Livabl)

Consumer Insolvency Filings Spike In Canada, And It’s Likely Just The Beginning (Huffington Post)

Here’s how the final quarter of 2018 is shaping up for the Canadian housing market (Livabl)

Will changes to rent control mean more Toronto rental buildings? This expert says probably not (Livabl)

Not too hot, not too cold: Vancouver’s new home market to remain stable in 2019 (Livabl)

A ‘grey tsunami’ and the precariousness of aging for Vancouver renters (Vancouver Sun)

These Canadian Housing Markets Took A Beating In 2018. What Does 2019 Have In Store? (Huffington Post)

Once on top, the Canadian housing market has fallen to the bottom of this global price ranking (Livabl)

New data shows how active foreign-homebuyers are in Metro Vancouver after big policy changes (Livabl)

How migration impacts Vancouver’s housing prices (Vancouver Sun)

The next Canadian interest rate hike may have just been pushed back all the way to next spring (Livabl)

Bank of Canada holds key interest rate steady at 1.75% (CBC)

Investors have little to fear of a housing meltdown (Canadian Real Estate Wealth)

Here’s how Canadian household debt levels could affect the housing market in 2019 (Livabl)

Vancouver real estate: sales and prices down to more ‘historical’ levels, says board (Vancouver Sun)

Toronto home prices stable in November amid sharp drop in listings (BNN Bloomberg)

There is never a better time than now for a free mortgage check-up.  It makes sense to revisit your mortgage and ensure it still meets your needs and performs optimally.  Perhaps you’ve been thinking about refinancing to consolidate debt, purchasing a rental or vacation property, or simply want to know you have the best deal?  Whatever your needs, we can evaluate your situation and help you determine what’s the right and best mortgage for you.

Adriaan Driessen
Mortgage Broker
Dominion Lending Forest City Funding 10671
Cell:     519.777.9374
Fax:      519.518.1081
riebro@me.com
www.iMortgageBroker.ca
415 Wharncliffe Road South
London, ON, N6J 2M3

Lori Richards Kovac
Mortgage Agent & Administrator
Dominion Lending Forest City Funding 10671
Cell:     519.852.7116
Fax:      519.518.1081
loriakovac@icloud.com
415 Wharncliffe Road South
London, ON, N6J 2M3

Adriaan Driessen
Sales Representative & Senior Partner
PC275 Realty Brokerage
Cell:     519.777.9374
Fax:      519.518.1081
adriaan@pc275.com
www.PC275.com
415 Wharncliffe Road South
London, ON, N6J 2M3

4 Dec

Residential Market Update

General

Posted by: Adriaan Driessen

WEEKLY RESIDENTIAL  MARKET UPDATE 

Industry & Market Highlights 

CMHC forecasts higher rates, slower housing

The conditions are right for further interest rate increases and that will blunt home sales and slow price acceleration.

The Canada Mortgage and Housing Corporation predicts the economy will continue to grow at a moderate pace well into next year.  The housing agency expects that will keep pressure on the Bank of Canada to raise rates which will, in turn, increase the debt service costs for mortgages and other borrowing.

CMHC says households will likely be forced to put a larger portion of their income into debt service payments.  The agency expects wage gains – which have not been keeping pace with economic growth – will also not keep pace with increasing debt costs and consumer spending will contract.

Combined with tougher borrowing rules, tighter money for consumers will be reflected in a drop in demand for housing, with a consequent softening of real estate prices.

The CMHC report covers the period from July through September of this year.  It predates the signing of the new NAFTA deal, the collapse of Canadian oil prices and the announcement that General Motors is closing its largest Canadian manufacturing operation.

The Bank of Canada is not expected to raise its benchmark interest rate at its setting later this week.  By First National Financial.

Mortgage Professionals Canada – Housing Market Digest – Rental Market in Canada – Fall 2018

Published annually, CMHC provides a comprehensive review of rental markets across Canada, through their Rental Market Report. Over the past year, a number of factors have caused demand for rental housing to rise and outpace supply.

Mortgage Professionals Canada Chief Economist, Will Dunning has summarized the data in a special Housing Market Digest which provides a condensed, yet detailed overview. Read the Report Here.

BoC takes a holiday from rate increases

The Bank of Canada gets one more chance to raise interest rates before the end of the year but market watchers are betting against a Christmas increase.

The October inflation numbers, which came in above expectations, would normally be seen as green light for the Bank to go ahead with another quarter-point increase.  Headline inflation for October came in at 2.4%, with analysts having called for a flat reading of 2.2%.

However, core inflation – which is what the central bank really cares about – came in pretty much on target, at 2%, across all three of the measurements used by the Bank.  The core inflation calculations strip out volatile items like food and fuel to give a truer picture of the underlying economy.

In an example of how interrelated the components of our economy are, market watchers – and the BoC – are also keeping a very close eye of the price of oil.  Canada’s benchmark crude price has been taking a serious hit lately, selling at less than US$20 a barrel (U.S. benchmark crude is selling for more than US$40 a barrel.)

The plunge in oil prices is expected to take a significant bite out of November’s inflation numbers and the Bank of Canada is expected to wait for better stability in the market before imposing any more rate increases.

Look to January for the next move.  By First National Financial.

Lower prices, fewer sales, more building  

Canada’s housing market seemed to be heading in two different directions at once in October.  While prices and sales declined, starts increased.

The latest numbers from the Canadian Real Estate Association show a 3.7% drop in sales compared to a year ago, with a 1.6% decline from September to October.  The association says the Greater Vancouver Area and Fraser Valley led the slide which offset sales increases in the Greater Toronto Area and Montreal.

CREA also reports a 1.1% drop in the number of new listings between September and October.  The sales-to-new-listings ratio sits at 54.2% for October which is in line with the long term average and is deemed to be in “balanced” territory.  At the same time there has been an unexpected surge in the number of housing starts.

The October report from Canada Mortgage and Housing Corporation shows a seasonally adjusted annual increase of 8.5% over September, topping analysts’ estimates.  The increase was led by urban starts in multi-unit construction.  Single-detached urban starts fell nearly 11%.

CREA’s MLS Home Price Index shows a 2.3% increase from a year ago while the national average price of a home in Canada actually fell 1.5% over the same period to just under $497,000.  That number is heavily skewed by pricing in Vancouver and Toronto.  With those markets taken out of the calculation the price comes in at just under $383,000 – up from about $335,000 in September.

The Teranet Home Price Index shows an October decline of 0.4% compared to September.  It is the first index decline in eight months, and just the fourth time in 20-years there has been a drop in October.  Year-over-year the index rose 2.8%.  That number is more pronounced than usual because of an abrupt drop in the index a year ago.  By First National Financial. 

Mortgage Update - Mortgage Broker London

Mortgage Update – Mortgage Broker London

Economic Highlights

Q3 Canadian GDP Growth Slowed On The Back of Weak Housing and Business Investment

Stats Canada released the third quarter GDP figures indicating an expected slowdown to 2.0% growth (all figures quoted in annual rates), compared to a 2.9% pace in Q2. Over the first three quarters of this year, quarterly growth has averaged 2.2% which is down from the 3.0% annual growth recorded in 2017. The Canadian economy is at or near full capacity, so slower growth is not a bad thing.

However, while the headline growth of 2.0% was on trend, the details of the report are troubling. The bulk of the growth last quarter came from a contraction in imports–hardly a sign of a robust economy–leaving final domestic demand–which excludes trade–negative for the first time since early 2016. The softness in imports reflected a contraction in refined energy products as well as aircraft and other transportation equipment.

The NAFTA trade battle over the summer took its toll on the economy as households and businesses sharply curtailed their spending. Consumer spending grew at its slowest pace in more than two years, while businesses posted an unexpected drop in investment and trimmed inventories. Consumer spending moderated, as overall household consumption rose just 1.2%, held back by durable goods spending (-2.7%) as Canadians bought fewer vehicles for a third straight quarter.

The biggest surprise in the report was the sharp decline in non-residential business investment (-7.1%). Spending on non-residential structures fell 5.2%, while machinery and equipment spending, which includes computer software and hardware, plunged at a 9.8% annual rate. Business spending was weighed down by softer oil and gas investment.

Though residential investment was expected to decline, the reported 5.9% drop in Q3 was more significant than expected. Despite an uptick in home sales activity, residential investment weakened as both new construction of housing and renovation activity pulled back (see Note below). Investment in new residential construction posted its largest decline since the second quarter of 2009 when the financial crisis was hammering the global economy. The uptick in home sales was reflected in a sharp uptick in ownership transfer costs, which includes real estate commissions, land transfer taxes, legal fees and file review costs (inspection and surveying).

On the income side, compensation of employees rose 2.7% (4.0% on a year-on-year basis), leaving overall wage gains over the quarter at a modest 2.2% year-on-year. The household savings rate rose to 4.0% from an upwardly revised 3.4% in Q1.

Looking at the monthly data for September, there was not much momentum going into the final quarter of this year. Monthly GDP in September declined -0.1% as just half of major industries expanded. It was mainly down in goods production (-0.7%) as oil and gas extraction pulled back, hit in part by maintenance work. Substantial gains in services (+0.2%) were not enough to keep the headline in positive territory.

The projected further weakening in Q4 will be abetted by the transitory downward impact from the recent postal strike. The risks are on the downside for the Bank of Canada’s forecast of 2.3% growth in the final quarter of this year. Currently, it appears that growth in Q4 will be closer to 1% than 2%.

Implications for the Bank of Canada

The headline 2% growth rate was spot on the Bank of Canada’s expectation, but certainly, the Bank will note the weakness in the underlying data. Potentially more important is the deep reduction in the price of oil for Canadian producers already struggling with transportation bottlenecks that have been pummelling the energy sector and depressing growth in Alberta. Cuts in oil production are likely to hit economic activity in the current quarter, with a full recovery not expected until at least mid-2019.

As well, the GM shutdown in Oshawa, Ontario raises concerns about the viability of the Canadian auto industry and adds to the weakness in the economic outlook. The two largest export sectors in Canada are energy and autos, so weakness in these sectors will keep the Bank of Canada on the sidelines in December, notably as consumers may well be tapped out. Markets had been expecting a rate hike in January, but the latest data suggest that the prospects of such a move have dropped significantly.

Notes:

*Housing investment in the GDP accounts is technically called “Gross fixed capital formation in residential structures”. It includes three major elements:

  • new residential construction;
  • renovations; and
  • ownership transfer costs.

New residential construction is the most significant component. Renovations to existing residential structures are the second largest element of housing investment. Ownership transfer costs include all costs associated with the transfer of a residential asset from one owner to another. These costs are as follows:

  • real estate commissions;
  • land transfer taxes;
  • legal costs (fees paid to notaries, surveyors, experts, etc.); and
  • file review costs (inspection and surveying).

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

Mortgage Interest Rates

Prime lending rate increased to 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates are slowly increasing.  Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages very attractive.

Other Industry News & Insights

$1 billion money laundered by crime networks in BC real estate? 

Criminal networks could have used British Columbia’s real estate market for more than $1 billion of money laundering.

A secret police report, obtained by Global News, reveals that crime networks are linked to 10% of the 1,200 luxury real estate purchases in the Lower Mainland included in a police study in 2016.

These include a $17 million Shaughnessy mansion owned by a suspected importer of the potent drug Fentanyl.

Of around 120 properties linked to crime, 95% are believed to have Chinese crime network origins.

Global News own analysis says that the crime networks may have laundered more than $5 billion in Vancouver-area homes since 2012.

The extent of the money laundering issue and the findings of the police study are discussed on the Simi Sara Show from 980 CKNW.  By Steve Randall.

Roundup of the latest mortgage and housing news.

From Mortgage Professionals Canada.

There is never a better time than now for a free mortgage check-up.  It makes sense to revisit your mortgage and ensure it still meets your needs and performs optimally.  Perhaps you’ve been thinking about refinancing to consolidate debt, purchasing a rental or vacation property, or simply want to know you have the best deal?  Whatever your needs, we can evaluate your situation and help you determine what’s the right and best mortgage 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
Lori Richards Kovac
Mortgage Agent & Administrator
Dominion Lending Forest City Funding 10671
Cell:     519.852.7116
Fax:      519.518.1081
415 Wharncliffe Road South
London, ON, N6J 2M3
Adriaan Driessen
Sales Representative & Senior Partner
PC275 Realty Brokerage
Cell:     519.777.9374
Fax:      519.518.1081
415 Wharncliffe Road South
London, ON, N6J 2M3