24 Jan

Residential Market Update – January 23, 2018


Posted by: Adriaan Driessen

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


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

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

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Change Of Space January 2018

19 Jan

Residential Market Update – January 17, 2018


Posted by: Adriaan Driessen

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

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

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

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

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

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