WEEKLY RESIDENTIAL MARKET UPDATE
Industry & Market Highlights
Demand Affordable Home Ownership
Tell Your MPP (www.tellyourmpp.ca) offers consumers the opportunity to send a message directly to their local candidate about the importance of accessible and affordable housing and the need for a strong and stable housing market in the province. In addition, consumers can learn about the government rule changes, their impact on homebuyers, and value of homeownership.
A letter writing tool has been created to help consumers get in touch with their local candidate. The messaging is clear and direct, asking candidates to commit to implementing policies that improve housing supply and to support proposals that provide assistance to those aspiring to enter the market.
This week, the Bank of Canada benchmark rate moved to 5.34% from 5.14%.
The Benchmark rate for qualifying mortgages will be moving up to 5.34% and it will take effect on Monday May 14th. This will have another negative impact on borrowers borrowing capacity for mortgage qualification, and reduce the qualified purchase price point for buyers.
The slew of bank moves was preceded by a rise in government bond yields. The yield on the Government of Canada benchmark five-year bond was 2.16 per cent on Tuesday, compared to 1.01 per cent a year earlier. Fixed-rate mortgages tend to move with government bond yields of a similar term, reflecting the change in borrowing costs.
The higher rates come as an estimated 47 per cent of all existing mortgages will need to be refinanced in 2018, up from the 25 to 35 per cent range in a typical year, according to a recent CIBC Capital Markets report.
The increase is an unintended consequence of various rounds of regulatory changes in the past few years aimed at reducing risk coupled with rising house prices that made it harder for homebuyers to qualify.
Borrowers who find the bar too high for the home they want can make some adjustments in order to make a purchase, she said. Those options include purchasing a smaller home and taking on less mortgage, or purchasing where prices are lower, added Brookes, who is founder of Mortgages of Canada.
The jump in the mortgage qualifying rate comes after Canada’s largest lenders raised their benchmark posted five-year fixed mortgage rates in recent weeks as the cost of borrowing rises.
Change of Space – NEW OSFI Mortgage Rules Updated
In October 2017, the Office of the Superintendent of Financial Institutions Canada (OSFI) published the final version of its Guideline B-20. The revised Guideline, which took effect January 1, 2018, applies to all federally regulated financial institutions.
Overview of Changes effective January 1, 2018:
A new minimum qualifying rate (stress test) for uninsured mortgages will be set
The minimum qualifying rate for uninsured mortgages will be the greater of the five-year benchmark rate published by the BoC or the contractual mortgage rate +2%.
Lenders will be required to enhance their LTV measurement and limits to ensure risk responsiveness
Federally regulated financial institutions must establish and adhere to appropriate LTV ratio limits that are reflective of risk and updated as housing markets and the economic environment evolve.
Restrictions will be placed on certain lending arrangements that are designed, or appear designed to circumvent LTV limits
A federally regulated financial institution is prohibited from arranging with another lender: a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law.
See the attached update Brochure for more information.
Demand from Toronto Triggers Record Sales in London
By examining transactional data from the London and St. Thomas Association of Realtors (LSTAR), this report addresses the following questions:
- How has demand from the Greater Toronto Area (GTA) influenced London’s resale market?
- Did a high level of repeat sales contribute to the strong sales activity recorded in London in 2017?
Homebuyers from the GTA purchased an increasing number of high-priced single-detached homes in the London census metropolitan area (CMA) in 2017. These buyers contributed significantly to the record level of MLS® sales and rapid price growth recorded for the first half of that year. In addition, as sales activity and price growth increased, repeat sales in London’s resale market became more pronounced. This is because a higher proportion of homes were being purchased and sold in less than a year.
- A higher level of demand spilled over from the GTA to the London CMA in the first quarter of 2017. This was especially true for homes in the higher price categories. GTA buyers accounted for 9% of all transactions and 20% of transactions for homes priced over $450,000. This was a substantial increase from the general trend, as GTA buyers accounted for only 3% of transactions between 2015 and 2016.
- Purchase activity by GTA buyers was concentrated in the City of London, especially in North and South London. It was quite limited in other areas of the London CMA.
- Overall, strong GTA demand and GTA buyers’ higher propensity to purchase expensive homes contributed to record MLS® sales and rapid price acceleration.
A high level of repeat sales was also a contributing factor to strong sales activity in 2017. Many homes were purchased at a low price in less expensive areas in 2016 and resold for large gross profits (average of 22%, or $49,027) in under a year.
Residential Market Commentary – Is stabilization occurring in Canada’s hottest markets?
April figures suggest Canada’s biggest and hottest real estate markets may be starting to show signs of something that resembles stabilization … or not.
In the Greater Toronto Area, April’s average price across all home types was a little less than $805,000. While that is down 12% from a year earlier it is just 0.2% below the average price in March. Sales increased by about 8% in April over March, but were down 32% compared to a year ago. Using the March/April comparison the Toronto Real Estate Board feels that the sales trend has “flattened out”.
By that standard Greater Vancouver also saw some “stabilization”, In April prices climbed an average of just 0.7% over March. However, year-over-year, April’s average was up more than 14%. Vancouver sales increased a moderate 2.5% m/m, but were down by more than 27% y/y.
Real estate boards in both Toronto and Vancouver cite the tougher federal mortgage rules as a key factor for the numbers. But both jurisdictions are also dealing with the fallout from provincial legislation designed to cool markets. Vancouver is, in fact, facing a second round of regulation, including an increase to its foreign buyers’ tax and its expansion to other parts of British Columbia.
Given that Vancouver seemed to shake-off the first round of regulation, it remains to be seen how effective the second round will be. It also remains to be seen whether buyers and sellers in Toronto have really calmed down, or if they are just waiting for the uncertainty created by government intervention to go away. By First National Financial LLP.
LSTAR’s News Release April 2018 – April home sales strong, as spring season heats up
London, ON – The London and St. Thomas Association of REALTORS® (LSTAR) announced 983 homes* were sold in April, down 19.6% over April 2017, which set a record for the best April results since LSTAR began tracking sales data in 1978.
“While home sales are down compared to the record breaking total in 2017, they remain at par with the 10-year average,” said Jeff Nethercott, 2018 LSTAR President. “However, home prices continue to rise across the region as we continue to see a much lower level of homes available for sale than the last few years.”
The average April sales price in the region was $367,433 up 5.0% over April 2017 and up 33.6% over April 2016. By geographic area, London South was $375,031 up 0.9% from last April. In London North, average home sales price was $454,847 up 7.3% compared to the previous year, while in London East, it was $306,469 an increase of 14.1% from April 2017. In St. Thomas, it was $285,316 up 7.7% over last April.
“For the last few months, the marketplace has been challenged with low inventory, and that trend continued in April,” Nethercott said. “In April, there were 1,401 active listings, down 13.9% from this time last year and down 50.6% from April 2016. The sales-to-new listings ratio was 70.9%, which the Canadian Real Estate Association (CREA) says represents conditions in the marketplace that favour sellers. As the spring season ramps up, this may be an opportune time to get in touch with your local REALTOR® if you’re considering selling your home.”
St. Thomas saw a total of 72 homes sold in April, down 23.4% from the same period last year. When looking at inventory, there were 56 active listings, down 38.5% from last April and down 68.5% from April 2016.
The following table is based on data taken from the CREA National MLS® Report for March 2018 (the latest CREA statistics available). It provides a snapshot of how average home prices in London and St. Thomas compare to other major Ontario and Canadian centres.
|London St. Thomas||$356,183|
According to a research report, one job is created for every three real estate transactions and approximately $53,000 in ancillary spending is generated every time a home changes hands in Ontario. “Real estate plays a huge role in growing the economy both regionally and beyond, with April generating potentially more than $52 million,” Nethercott said. “The impact was also made to employment, helping to create approximately 327 jobs in April, further providing a boost to southwestern Ontario’s economy.”
The London and St. Thomas Association of REALTORS® (LSTAR) exists to provide its REALTOR® Members with the support and tools they need to succeed in their profession. LSTAR is one of Canada’s 15 largest real estate associations, representing over 1,700 REALTORS® working in Middlesex and Elgin Counties, a trading area of 500,000 residents. LSTAR adheres to a Quality of Life philosophy, supporting growth that fosters economic vitality, provides housing opportunities, respects the environment and builds good communities and safe neighbourhoods and is a proud participant in the REALTORS Care Foundation’s Every REALTOR™ Campaign.
*These statistics are prepared for LSTAR by the Canadian Real Estate Association (CREA) and represent a data snapshot taken on May 1, 2018, based on processed home sales activity between April 1 and 30, 2018.
Statistical Package for April 2018 – Click on the following link to see the new Statistical Package of LSTAR for the month of April:
Visit LSTAR’s new interactive Statistical Dashboard to find out even more information about the real estate markets located in LSTAR’s jurisdiction. In order to see the Dashboard, please wait until the page is completely loaded.
CREA’s Statistical Reports for London and St. Thomas
- MLS® STATISTICS – RESIDENTIAL ACTIVITY
- EMPLOYMENT TRENDS
- INTEREST RATES TREND
- SALES BY PRICE RANGE
- MARKET CONDITIONS
- MEDIAN PRICE
Canadian Housing Starts Trend Stable in April
In April, the national trend in housing starts remained stable at historically elevated levels, with lower starts of single-detached dwellings offsetting higher starts of multi-unit dwellings. Notably, the national inventory of newly completed and unabsorbed multi-unit dwellings has been stable over the same period, indicating that demand for this type of unit has absorbed increased supply.
The trend in housing starts was 225,696 units in April 2018, compared to 226,942 units in March 2018, according to Canada Mortgage and Housing Corporation (CMHC). This trend measure is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR) of housing starts.
Housing starts in the Vancouver Census Metropolitan Area (CMA) continued their strong trend throughout April. Year-to-date starts were up for both single and multi-family units as builders continue to maintain a high level of under construction inventory in response to high demand in the apartment and condominium markets. The City of Vancouver and the North Shore have seen the strongest activity so far in 2018.
Housing starts activity in the Kelowna CMA picked up significantly in April, driven in large part by the multi-unit segment. The recovery in housing starts activity, almost rivalling the record starts seen in April 2017, was the result of some large apartment rental and condo projects getting underway. Multi-unit housing demand, both rental and ownership, remains strong in the Kelowna CMA, while vacancy rates and homes listed for sale remain low.
The pace of total housing starts slowed further in April after construction in both single-detached and multi-family sectors trended lower from the previous month. Year-to-date housing starts in Saskatoon were down by 36%, compared to the same period of 2017.
In April, starts in the London CMA trended higher for the first time in five months. Rental apartment starts proved to be the most notable engine of growth this month, followed by single-detached and row starts. Although starts have moved off their recent peak, they remain in the vicinity of decade highs. Strong spillover demand from a tight resale market has kept new construction robust.
The total housing starts trend in the Toronto CMA remained virtually unchanged in April. High house prices continued to deter buyers from purchasing single, semi-detached and townhome pre-construction units, and this lower demand has resulted in fewer starts for these types of units. Conversely, condominium apartments’ relative affordability continues to fuel their demand. As a result, the first quarter of 2018 saw the most apartment starts recorded in a quarter in over 40 years.
Housing starts in Kingston trended higher in April, as more single-detached and multi-unit housing starts, including rental apartments, got underway. In fact, builders have started more rental projects for the third month in a row in anticipation of stronger rental demand from students and an aging population. Kingston’s vacancy rate at 0.7% in fall 2017 was the lowest among 16 Ontario CMAs.
Housing starts increased sharply in the Montréal CMA in April, thanks to the start of construction on a number of large condominium projects and rental properties. From January to April, a 20-year record number of condominiums and rental units were started. The strength of the job market, which is supporting housing demand, combined with both the small number of condominiums for sale and the area’s low rental apartment vacancy rate are likely encouraging developers to build many new units.
While housing starts in the province increased in April compared to the same month last year, New Brunswick has seen its slowest first four months in 20 years. Year-to-date, total housing starts were 41% lower compared to the first four months of 2017 due to a decline in multiples housing starts.
A low vacancy rate paired with continued in-migration to the Charlottetown area is driving demand for multiple units so far in 2018. The volatile multiple segment was up considerably on the inclusion of recent new project construction activity.
Canadian Data Release: Housing starts slow in April but remain healthy
· Canadian housing starts dipped to 214k (annualized) units in April, down 4.9% from March’s slightly upwardly revised pace of 225k. The pace disappointed expectations for a milder pullback, to 220k, but the rate of homebuilding in Canada remains strong. The underlying trend, defined as the six month moving average, edged slightly lower to 226k.
· Single-detached starts decreased by 9.5% to 69k units, while multifamily starts dropped by 2.6% to 145k units during the month.
· The bulk of April’s decline was concentrated in B.C. (-8k to 41k), Newfoundland and Labrador (-5k to 1k) and Ontario (-5k to 70k). Starts were also lower in Manitoba and New Brunswick. On the flip side, relatively strong gains were observed in Quebec (+4k to 57k) and Alberta (+3k to 30k).
· Starts fell for the second straight month in Toronto (-12k to 27k units), with declines in both the single-detached and multi-family sector. Starts also declined in Vancouver (-9k to 23k units). Conversely, starts were higher in Montreal (+13k to 33k units).
· The pace of starts eased but remained solid in April, supported by continued population and income growth. Overall, we expect near-term starts to remain elevated – something telegraphed by permit issuance data.
· Homebuilding is proceeding at firm pace across most of the country, and is particularly strong in B.C. and Quebec. The Prairie provinces remain as the key exception, with homebuilding under pressure from oversupplied markets in Alberta and Saskatchewan, with a decline anticipated in Manitoba after an outsized gain last year.
· Looking ahead, we expect the pace of starts to pull-back closer to the 200k mark in the second-half of 2018, and dip below that level towards the fundamentally-supported pace next year as higher interest rates and regulatory changes weigh on demand. By Rishi Sondhi, Economist.
· Investors were kept busy this week with plenty of top-tier data, both internationally and domestically, alongside a Fed meeting mid-week. International PMIs suggested some slowing in global economies, largely related to trade tensions.
· U.S. PMIs also pulled-back, but other data was far more constructive. Consumer spending accelerated to 0.4% in March, setting the second quarter on a solid growth path, which should come in near 3%.
· Firming inflation was the main story this week, with the PCE deflator (and core measure) accelerating to 2.0% and 1.9%, respectively. The Fed has taken notice of this, indicating in the statement a more confident view of the inflation outlook. This should enable the Fed to raise rates at least twice more times this year, with three hikes likely during 2019.
· Economic data released this week was a mixed bag. On the plus side, GDP growth topped expectations in February. However, merchandise trade data for March confirmed that net trade is likely to be a drag on Q1 growth.
· Home sales in April dropped in Toronto, while bouncing higher in Vancouver, though quality adjusted prices declined in both markets. Looking ahead, it will likely be some time before a sustained improvement emerges in either market.
· In a mid-week speech, Governor Poloz continued to flag elevated debt as a key risk to growth, though remained optimistic on the broader economic outlook. With growth advancing largely as expected, we continue to believe the next rate hike will come in July.
By TD Economics. Read the full report Here.
Gradual Rate Hikes Signalled
The Bank of Canada will likely raise rates twice this year–probably in the summer and fall. As always, central bank policy will remain data dependent and will adjust with any significant changes in the economic backdrop. It is widely expected that the NAFTA negotiations will be satisfactorily completed in the near future, but that still remains a wildcard.
Increased U.S. protectionist fervour is a significant negative for the global economy. Today, 1,100 U.S. economists signed a letter to President Trump warning him of the dangers of tariffs, reminding him that the 1930 Smoot-Hawley tariffs led to a sustained economic depression. Dr. Sherry Cooper. Chief Economist, Dominion Lending Centres.
Canada Mortgage and Housing Corp. says the annual pace of housing starts in April slowed compared with March.
The seasonally adjusted annual rate of new home construction, which is seen as a measure of the health of the housing market, fell to 214,379 units in April compared with 225,459 in March.
The move came as the pace of starts in urban areas fell 4.7 per cent in April to 198,090.
The rate of multiple urban starts, which includes apartments, townhouses and condominiums, fell 2.7 per cent to 141,032, while the rate of single-detached urban starts dropped 9.3 per cent to 57,058.
Rural starts were estimated at a seasonally adjusted annual rate of 16,289.
The six-month moving average of the monthly seasonally adjusted annual rates edged down to 225,696 in April compared with 226,942 in March.
Mortgage Interest Rates
No change to Prime lending rate currently at 3.45%. Bank of Canada Benchmark Qualifying rate for mortgage approval is now 5.34%. Fixed rates moved upward again with about 20 basis points due to the continuing rise in government bond yields, upward pressure on fixed rates continue. Deeper discounts are are available for variable rates making adjustable variable rate mortgages more attractive again.
Other Industry News & Insights
Millennials are the driving force of the real estate market
Canada’s millennials are focused on homebuying and their intentions are driving the real estate market.
A new report from mortgage insurer Genworth Canada reveals that 59% of millennials are already homeowners, with 30% having bought a home in the past two years (including first-time buyers and repeat buyers).
That means more than three times as many Canadian millennials bought a home in the last two years as older Canadians (9%).
Among non-homeowners 30% say they intend to buy in the next two years.
Millennial finances appear strong
The National Financial Fitness and Homeownership Study was conducted in association with the Canadian Association of Credit Counselling Services (CACCS) from February 8 – March 27, 2018; and asked several questions about financial well-being and intentions.
Among those who said their finances are in good shape are 68% of first-time buyers; 58% of first-time intenders; 59% of repeat buyers; and 62% of repeat intenders.
“It is encouraging to see the high level of financial confidence coming from first-time homebuyers and homeowners. As a company that is committed to providing financial literacy education to aid those looking to achieve homeownership, these results demonstrate that this segment of Canadians are doing the necessary homework to support their financial future,” said Stuart Levings, President and CEO of Genworth Canada.
|Great/good financial shape||53%||60%||38%||68%||58%||59%||62%||59%||69%|
|I am in great financial shape – I have set clear financial goals that I
am well on my way to achieving
|I am in pretty good shape- I have a general notion of what I want to achieve with my finances, and things are more or less going in the
|I am neither in great shape nor poor shape – I try to save when I can
but I don’t seem to be getting ahead
|My financial fitness is not very good – I know that I haven’t been
able to achieve the financial goals that I should have by now
|My financial fitness is very poor – I feel like I am always falling
behind and/or that I don’t know where to turn for help
|Very poor/not very good||16%||11%||25%||6%||6%||8%||14%||10%||7%|
|Don’t know/not sure||2%||1%||3%||0%||3%||2%||1%||2%||2%|
DP= Down payment
This week Genworth Canada has a series of educational webinars in celebration of their annual Homeownership Education Week event where industry professionals can learn more about this and other topics. By Genworth Financial.
Toronto Home Sales Lowest Since Last Recession
Toronto home sales are off to the worst start in nine years, as tougher rules for mortgage qualifications and rising interest rates continue to push buyers out of the market.
Sales fell for four straight months on a seasonally adjusted basis, with the fewest transactions to start a year since the 2009 recession, according to data Thursday from the Toronto Real Estate Board. April itself was one of the weakest months in the past 15 years for sales in Canada’s biggest city.
Prices, however, continued to stabilize. The benchmark, which is weighted to account for differences in home type, climbed 0.7 percent from last month to C$766,300 ($595,700). The condo apartment segment helped boost prices, jumping 10 percent to C$495,600 from a year earlier. In contrast, detached home prices tumbled 10 percent from April 2017 to C$927,800.
Similarly, Vancouver benchmark prices rose 14 percent in April from a year ago, while sales fell 27 percent to a 17-year low for the month, according to the Real Estate Board of Greater Vancouver.
Canada’s once-hot housing market has been correcting in recent months, adjusting to a series of tighter regulations aimed at taming prices and debt levels. Sales have cooled particularly for ’s pricier detached homes, as new mortgage guidelines that came into effect on Jan. 1 make it harder for buyers to qualify for loans. The slowdown has put the market on edge as it enters its traditionally busy spring selling season.
Toronto sales were down almost a third in April from a year earlier to 7,792 units, the fewest for the month since 2003.
“Market conditions should support moderate increases in home prices as we move through the second half of the year, particularly for condominium apartments and higher density low-rise home types,” Jason Mercer, TREB’s Director of Market Analysis said in a statement.
The high-end of Toronto’s housing market continued to weaken after last year’s boom. Sales of detached homes worth C$2 million or more accounted for 5.5 percent of the segment’s total, down from 10 percent a year earlier.
New listings fell 25 percent from April 2017 to 16,273. Average home prices in the Toronto region fell 12 percent over that period to C$804,584. By Natalie Wong and Erik Hertzberg. Bloomberg.
Now’s the perfect time of year for a free mortgage check-up. With spring in full swing and with interest rates on the rise, it makes sense for us to revisit your mortgage and ensure it still meets your needs. Perhaps you’ve been thinking about refinancing to consolidate debt, purchasing a rental or vacation property, or you simply want to take a vacation. Whatever your needs, we can evaluate your situation and help you determine what’s right for you.
Dominion Lending Forest City Funding 10671
415 Wharncliffe Road South
London, ON, N6J 2M3
Sales Representative & Partner
PC275 Realty Brokerage
415 Wharncliffe Road South
London, ON, N6J 2M3k