WEEKLY RESIDENTIAL MARKET UPDATE
Industry & Market Highlights
Home Sales Strong in May, with Best Monthly Numbers in 2018
The London and St Thomas Association of REALTORS® (LSTAR) announced 1,171 homes* were sold in May, down 24.4% over the same time last year, which saw a record-setting month for May with 1,549 homes sold. The May 2017 home sales stands as the highest ever sales month in LSTAR’s history, since the Association began tracking sales data in 1978.
“We’re very encouraged by the sales in May, which represent the third best May results LSTAR has had,” said Jeff Nethercott, 2018 LSTAR President. “The homes sold are actually above the 10-year average, despite the ongoing challenge of low inventory in the marketplace. Similar to what’s happened each month this year, home prices continue to gradually increase across the region, as fewer homes are available for sale.”
The average May sales price in London and St. Thomas was $366,096 up 6.4% over May 2017 and up 28.4% over May 2016. By geographic area, London South was $370,851 up 4.4% from last May. In London North, average home sales price was $451,556 up 4.7% compared to the previous year, while in London East, it was $291,359 an increase of 11.1% from May 2017. In St. Thomas, it was $288,723 up 11.2% over last May.
“The big trend we continue to see in the marketplace is low inventory, which remains at its lowest level in 10 years,” Nethercott said. “In May, there were 1,643 active listings, down 7.7% from this time last year and down 44.6% from May 2016. The sales-to-new listings ratio was 70.8%, which the Canadian Real Estate Association (CREA) says represents conditions in the marketplace that favour sellers. With warmer temperatures and summer around the corner, it’s a great time to contact your local REALTOR® if you’re considering selling your home.”
St. Thomas saw a total of 100 homes sold in May, down 12.3% from the same period last year. For inventory, there were 82 active listings, down 28.1% from last May and down 49.7% from May 2016.
The following chart is based on data taken from the CREA National MLS® Report for April 2018 (the latest CREA statistics available). It provides a snapshot of how average home prices in London and St. Thomas compare to other major Ontario and Canadian centres.
According to a research report1, one job is created for every three real estate transactions and approximately $53,000 in ancillary spending is generated every time a home changes hands in Ontario. “The robust home sales in May provided a huge boost from the real estate space, generating potentially more than $62 million,” Nethercott said. “It’s a huge force in growing the local economy, helping to create approximately 390 jobs in May, further contributing to the economic engine of southwestern Ontario and beyond.”
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 June 1, 2018, based on processed home sales activity between May 1 and 31, 2018. 1Economic Impacts of MLS® System Home Sales and Purchases in Canada and the Provinces, Altus Group Consulting, 2013.
Residential Market Commentary – The change of language in the BoC’s rate announcement
Market watchers are now looking to July 11 as the most likely date for an interest rate increase by the Bank of Canada.
The Bank decided, once again, to hold its trendsetting policy rate at 1.25% for the May setting, but the wording of the statement that comes along with the decision did change. The Bank’s language is deemed to have become more direct.
“Overall, developments since April further reinforce the governing council’s view that higher interest rates will be warranted to keep inflation near target… Governing council will take a gradual approach to policy adjustments, guided by incoming data”, said the Bank in its statement.
Note that the word “gradual” has replaced the word “cautious” and the line “some monetary policy accommodation will still be needed to keep inflation on target”, has been removed.
The central bank cited the soft resale housing market as a limiting factor but noted it expects things to pick up as wage growth improves. The Bank also noted better overall, global economic performance led by the United States. However, that was before the upheaval created by new, American tariffs on steel and aluminum, which could create further delays in the NAFTA renegotiations.
The uncertainty surrounding NAFTA has been a key limiting factor in the BoC’s efforts to raise rates. Now opinions are beginning to diverge on whether there will be a three rate increases this year. Common thinking has been that there will be a third hike in October. By First National Financial LP.
Housing Slowdown and Wilting Consumers Dampened Q1 Canadian GDP Growth
Stats Canada released the first quarter GDP figures indicating a slowdown in growth in the first quarter to a 1.3% annual rate compared to 1.7% in the final quarter of last year. This was precisely what the Bank of Canada (BoC) forecast for Q1 in the April Monetary Policy Report (MPR).
Yesterday, the BoC told us in its press release that the first quarter’s growth exceeded their expectations. Most economists were expecting first-quarter growth to come in at 1.8%, and so was the BoC. Only goes to show that not even the central bank has a crystal ball.
Growth was dampened by a deceleration in household spending, lower exports of non-energy products and a decline in housing investment. Consumer spending decelerated for the third consecutive quarter–rising by 1.1% in Q1 compared to 2.2% last quarter. The growth in consumption peaked in the first quarter of last year at a robust 4.0% annual rate. Household spending growth has decelerated to its slowest pace in three years. Consumer spending on goods such as automobiles stalled after almost three years of gains.
Growth in business spending on capital projects slowed to 3.5% from 9.7% in the final period of last year, and foreign trade was a drag on growth as exports climbed less than imports.
The most significant decline was in housing. Investment in housing fell 7.2%, the most since 2009, on a whopping 13.5% plunge in ownership transfer costs such as real estate and mortgage broker commissions (see chart). That reflected new mortgage stress test measures that began in January, Statistics Canada said.
On the positive side, the quarter ended with a monthly output gain of 0.3% for March, led once again by a 1.9% rise in mining, quarrying and oil and gas extraction. However, the monthly industry-level data showed the biggest plunge in the output of housing-related brokers since the first quarter of 2008 when the global economy was mired in financial crisis. This, of course, was the intentional result of government and regulatory efforts to slow the housing market.
The pace of economic expansion in Canada has now been below 2% for three consecutive quarters, the worst performance since the oil crash in mid-2015. The economy had recovered with gains exceeding 4% in the first half of last year when Canada boasted the most robust economy in the G-7. In the first quarter of this year, while Canada’s economy grew at a 1.3% pace, the GDP growth in the United States was 2.2%.
BoC Deputy Governor Leduc’s speech later today may give some hints about how today’s releases impact the Bank’s thinking, but in general, a July rate hike is still in play after yesterday’s no-change decision. By Dr. Sherry Cooper. Chief Economist, Dominion Lending Centres
Poloz Opens The Door For A Rate Hike In July
As expected, the Bank of Canada held rates steady at 1.25% for the third consecutive month but said that first-quarter growth was stronger than expected and that developments since April suggest that higher interest rates will be warranted.
The first quarter GDP numbers are out tomorrow morning, and it’s clear the Q1 growth will be above the 1.3% figure the Bank projected in the April Monetary Policy Report. This opens the door for a rate hike possibly as soon as the next meeting on July 11. The Canadian dollar rallied on this news as many feared that the Bank was behind the curve in responding to a recent rise in overall inflation–induced by higher gasoline prices–and very tight labour markets.
Uncertainty remains on the NAFTA front, dampening global business investment. Canadian firms long for a bright and stable resolution of trade conflicts with the U.S., which continues to be elusive. Business investment picked up in the first quarter and the Business Outlook Survey released in late June will give the central bank a window on business intentions before the next policy meeting.
Concerning the housing market, the Bank’s press release noted that “Housing resale activity has remained soft into the second quarter, as the housing market continues to adjust to new mortgage guidelines and higher borrowing rates. Going forward, solid labour income growth supports the expectation that housing activity will pick up and consumption will continue to contribute importantly to growth in 2018.”
Not everyone shares this optimism. The past week’s bank earnings releases show that mortgage originations have slowed considerably from year-ago levels and some have suggested that weak activity will prevail for the rest of the year.
The posted mortgage-rate, which is used to qualify borrowers, has risen to 5.34%, making it more difficult for some to gain approval, particularly at the federally regulated lenders. Variable mortgage rates are much lower as the gap between fixed and floating rates has hit historical highs.
Bottom Line: The central bank statement was much more hawkish than expected suggesting we are on target for a rate hike in July and another one is likely in October as well.
The Bank of Canada raised rates three times since the middle of last year as the economy moved closer to full capacity. But the Bank has been in a holding pattern since January cautiously waiting to see the results of trade negotiations and the degree of the slowdown in housing.
These factors will determine the pace of future rate hikes with the Bank estimating its neutral rate is 3%, more than double the current overnight rate. The Bank will only very gradually approach that level, mindful of the impact on an overly indebted household sector.
Dr. Sherry Cooper. Chief Economist, Dominion Lending Centres
Economic Highlights
Data Release: Poloz holds, but throws caution to the wind
- The Bank of Canada held its key monetary policy interest rate at 1.25% this morning, as widely expected. The statement released with the decision had a hawkish tone, suggesting the next rate hike is not far off.
- Economic developments since April are seen as in line with the Bank’s view, albeit for the first half overall, given an expected Q1 outperformance. Housing activity is expected to improve as the year continues, helped by rising incomes. The Bank sees consumption continuing to play an important role, suggesting that household finances are not (in their estimation) particularly pinched by recent rate hikes.
- Beyond our borders, some upside is seen for the U.S., but trade policy uncertainty remains a dampening factor. Emerging market stresses were also highlighted, while recent oil price moves were characterized as driven by geopolitical developments.
- On the inflation front, there is little to get excited about. The Bank expects inflation to exceed its earlier forecasts due to gasoline prices, but reminded us that, as usual, they will look through this transitory factor.
- All told, the positives seem to outweigh the negatives. Gone was the reference to “caution” that typified the last few statements. Today’s statement instead chose the term “gradual” to describe the approach to policy adjustments. Importantly, interest rate sensitivity and the evolution of economic capacity remained areas of particular focus.
Key Implications
- No surprise here. With the economy set to outperform the Bank’s earlier expectations (Q1 GDP data is released tomorrow morning) and signs of life in all sectors bar housing, economic conditions favour another interest rate hike. While we may need a grammarian to distinguish between “cautious” and “gradual”, the message was nevertheless clear: get ready for another rate hike.
- Indeed, even more explicit than the adjective change was the dropping of the qualifier “over time” in regards to higher rates, and the only reference to labour markets was expectations for ‘solid’ income growth – gone are concerns about potential slack. This reinforces our view that as the economy continues to perform well into the middle of the year, the Bank will have the confidence it needs to raise its policy interest rate at its next scheduled decision, this July.
Brian DePratto, Senior Economist. TD Economics. Read the full report Here.
Mortgage Interest Rates
No change to Prime lending rate currently at 3.45%. Bank of Canada Benchmark Qualifying rate for mortgage approval is at 5.34%. Fixed rates are holding steady, no change in fixed rates. Deeper discounts are are available for variable rates making adjustable variable rate mortgages very attractive again.
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Terms
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Posted
Rates
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Payment
Per $100k
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Our Rates
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Payment
Per $100k
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Savings
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6 Months
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3.14%
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$480.46
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3.10%
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$478.39
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$2.07
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1 Year
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3.04%
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$475.30
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2.99%
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$472.73
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$2.57
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2 Years
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3.44%
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$496.11
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3.24%
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$485.65
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$10.46
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3 Years
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3.59%
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$504.03
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3.39%
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$493.48
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$10.55
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4 Years
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3.89%
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$520.07
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3.54%
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$501.38
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$18.69
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5 Years
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5.59%
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$615.64
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3.29%
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$488.25
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$127.39
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7 Years
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5.80%
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$627.97
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3.94%
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$522.77
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$105.19
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10 Years
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6.10%
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$645.76
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3.99%
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$525.48
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$120.28
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Variable
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2.70%
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$457.99
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2.41%
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$443.50
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$14.49
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Prime Rate
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3.45%
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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.
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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
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Now’s the perfect time of year for a free mortgage check-up. With spring on its way and interest rates on the rise, it makes sense for us to revisit your mortgage and ensure it still meets your needs. Perhaps you’ve been thinking about refinancing to consolidate debt, purchasing a rental or vacation property, or you simply want to take a vacation. Whatever your needs, we can evaluate your situation and help you determine what’s right for you.
Adriaan Driessen
Mortgage Broker
Dominion Lending Forest City Funding 10671
Cell: 519.777.9374
Fax: 519.518.1081
415 Wharncliffe Road South
London, ON, N6J 2M3
Adriaan Driessen
Sales Representative & Partner
PC275 Realty Brokerage
Cell: 519.777.9374
Fax: 519.518.1081
415 Wharncliffe Road South
London, ON, N6J 2M3