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19 Jul

Residential Market Update


Posted by: Adriaan Driessen



Industry & Market Highlights 

Residential Market Commentary – Predictability, risk, and rising rates

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

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

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

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

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

Poloz Opens The Door For More Rate Hikes

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

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

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

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


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

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

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

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

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

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

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

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

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


Dr. Sherry Cooper.  Chief Economist, Dominion Lending Centres

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

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

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

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

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

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

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

Teranet-National Bank HPI confirms what we thought

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

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

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

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

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

The hottest, coolest markets

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

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

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

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

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



Economic Highlights

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

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

Monetary Policy Report – July 2018

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

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

By The Bank of Canada.

Review of the BoC meeting

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

Bank of Canada Meeting and MPR

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

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

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

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

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

Cautionary notes and the rising cost of borrowing

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

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

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

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

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

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

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

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

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

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

Key Implications

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

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

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


Mortgage Interest Rates

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

Terms Posted



  Per $100k

Our Rates Payment

  Per $100k

6 Months 3.14% $480.46 3.10% $478.39 $2.07
1 Year 3.04% $475.30 2.99% $472.73 $2.57
2 Years 3.44% $496.11 3.24% $485.65 $10.46
3 Years 3.59% $504.03 3.39% $493.48 $10.55
4 Years 3.89% $520.07 3.54% $501.38 $18.69
5 Years 5.59% $615.64 3.29% $488.25 $127.39
7 Years 5.80% $627.97 3.94% $522.77 $105.19
10 Years 6.10% $645.76 3.99% $525.48 $120.28
Variable 2.70% $457.99 2.41% $443.50 $14.49
Prime Rate 3.45%
Please Note: Payment per $100K and possible savings shown above are based on a 25-year ammortization. Rates are subject to change without notice and the rate you receive may vary depending on your personal financial situation. *OAC E&OE. Please reply to this email and I will be happy to provide you with greater detail and determine the best rate available for you.
This edition of the Weekly Rate Minder shows the latest rates available for Canadian mortgages. At Dominion Lending Centres, we work on your behalf to find the best possible mortgage to suit your needs.

Explore mortgage scenarios using helpful calculators on my website: