WEEKLY RESIDENTIAL MARKET UPDATE
Industry & Market Highlights
Bank of Canada Raises Rates
The Bank of Canada raised it’s overnight rate by 0.25% from 1.25% to 1.50%. This target overnight rate is what major financial institutions charge for one day loans, and is used to set Prime lending rate for consumers. The overnight lending rate as been at 1.25% since the last raise in January. In response to this, we can expect to see financial institutions to raise their prime rates in conjunction with the Bank of Canada. Prime rate will increase to 3.7%. This increase will affect all consumers with a variable-rate mortgage and will also have an impact on the bond market, with an expectation to see fixed rates rising in response.
Home Sales Strong in June, Despite Inventory Challenge
London and St Thomas Association of REALTORS® (LSTAR) announced 1,080 homes* were sold in June, down 14.6% over the same time last year, which saw a record-setting month for June with 1,264 homes sold since the Association began tracking sales data in 1978.
“The home sales in June continue the strong momentum we saw in May, setting the stage for a very robust season for resale homes this summer,” said Jeff Nethercott, 2018 LSTAR President. “Sales activity remains above the 10-year average, as the marketplace continues to manage the lowest inventory levels since 2009. Average home prices are making slight gains all across the region.”
By geographic area, London East made the biggest gains, with the average June sales price at $295,541, up 11.7% from June 2017 and up 34.7% compared to June 2016. London North also saw an increase of 11.6% from June 2017 with an average sales price of $479,237. That’s up 39.9% compared to June 2016. Meanwhile, the average sales price in London South was $372,881, up 9.2 percent from June 2017 and up 36.6% from June 2016.
Overall, the average June sales price in London and St. Thomas was $370,247, up 10.5% from June 2017 and up 32.7% from June 2016. Going further back, it’s a 72.0% increase compared to the average sales price 10 years ago.
“As the average sales price trends upward, inventory continues to decrease,” Nethercott said. “In June, there were 1,779 active listings, down 4.3% from this time last year and down 40.0% from June 2016. The sales-to-new listings ratio was 72.0%, which the Canadian Real Estate Association (CREA) says represents conditions in the marketplace that favour sellers (a ratio between 40% and 60% is generally consistent with a balanced market). So for those considering to sell their home, now would be an optimal time to get in touch with your local REALTOR® who can help you navigate through the process.”
St. Thomas saw a total of 99 homes sold in June, down 9.2% from the same period last year. For inventory, there were 76 active listings, down 32.7% from last June and down 53.1% from June 2016. The average home sales price in St. Thomas was $294,471, up 5.5% from June 2017 and up 25.7% from June 2016.
*These statistics are prepared for LSTAR by the Canadian Real Estate Association (CREA) and represent a data snapshot taken on July 1, 2018, based on processed home sales activity between June 1 and 30, 2018.
Consumer confidence, or a lack thereof
The battle lines have now been clearly drawn in our burgeoning trade fight with the United States and one of the first casualties appears to be consumer confidence.
Two key indicators of consumer confidence, released just prior to Canada imposing retaliatory tariffs on the U.S., show sharp drops.
The Conference Board of Canada’s monthly measure is based on four, forward-looking questions put to a random sample of households. Its June report registered a 4.5 point drop in consumer sentiment. Optimism was down in the responses to all four questions and sentiment sagged in every area of the country except Manitoba and Saskatchewan.
The Nanos-Bloomberg confidence poll for the week ending June 22 fell to 55.3 points, down from 57.1 the previous week. That is its lowest level since 2016 and it is the biggest drop in since weekly polling started in 2013.
Nanos-Bloomberg saw sentiment deteriorate for all four of its polling questions, with economic expectations taking the hardest hit. Just 14.7% of respondents felt the economy would get stronger over the next six months. About 38% felt things will get worse.
The pollsters say the heated rhetoric coming from the president of the United States is largely to blame, but rising interest rates and slowing housing markets are also contributing to the consumer funk. By First National Financial.
RBC Sounds Alarm For Affordability in Canada
An RBC report says housing affordability in Canada worsened in the first quarter, ending a one-quarter reprieve, the first in two and a half years.
The proportion of median pre-tax household income needed for mortgage payments, property taxes and utilities rose 0.4 percentage points from the fourth quarter to 48.4 per cent.
The move reversed a 0.3 percentage point drop in the fourth quarter.
Mortgage rates increased in the previous two quarters, but a drop in home prices mainly in the Greater Toronto Area, trimmed ownership costs modestly.
The report added that an expected one percentage point increase in the Bank of Canada’s overnight rate to 2.25 per cent by the first half of 2019 is poised to worsen housing affordability.
Home ownership costs in the Greater Vancouver Area reached a record high of 87.8 per cent in the first quarter, rising 1.5 percentage points in the quarter to what is considered a crisis level. Victoria was also high at 62.7 per cent.
The Greater Toronto Area saw affordability improve slightly to 74.2 per cent as a dip in home prices counteracted higher interest rates.
Affordability eroded modestly in most other Canadian markets as higher interest rates outpaced stable housing prices.
Saskatoon, Ottawa, Halifax and St. John’s, N.L., saw the largest deteriorations in affordability in more than a year, but housing costs remained low at between 27 and 36.6 per cent.
The report says stress may be building in the Greater Montreal Area, which saw costs reach their highest point since 2011 at 43.7 per cent. By The Canadian Press.
Chinese inquired about US$1.45B worth of Canadian properties last year: Juwai
A website for buyers of overseas properties says Chinese nationals expressed interest in about US$1.45 billion worth of Canadian properties last year, with interest in Toronto and Vancouver slipping following the introduction of foreign buyers taxes.
Juwai.com says consideration of properties in Canada’s largest city dropped by 25 per cent in 2017 after nearly doubling between 2015 and 2016.
Vancouver inquiries fell 18 per cent last year after growing by 9.3 per cent the previous year.
Metro Vancouver has had a 15 per cent tax on foreign home purchasers since 2016. The new provincial government hiked the levy to 20 per cent and imposed it in the Victoria and Nanaimo areas, as well as the Fraser Valley and central Okanagan.
A 15 per cent tax was imposed in the Greater Golden Horseshoe area _ stretching from the Niagara Region to Peterborough _ on buyers who are not citizens, permanent residents or Canadian corporations. In the first month after the tax was imposed in late April, foreign buyers made up 4.7 per cent of home sales in the region, according to Statistics Canada.
With no tax in place, Montreal was the hot destination, growing by 84.5 per cent in 2017 and 43.3 per cent a year earlier.
A separate report says no additional foreign buyers taxes are expected to be imposed in Canada and Australia this year, with New Zealand being the only major investment destination considering one.
Juwai says Chinese were unfairly blamed for property price increases, even though data suggested it was due to other factors such as historically low interest rates.
More than half of Chinese buyers considering Canada were motivated to invest for their own use, nearly 26 per cent for investment and 17 per cent for education. By The Canadian Press.
Toronto home sales, prices edge higher
Home sales in the Toronto housing market showed some improvement in June along with the average selling price.
Toronto Real Estate Board members sold 8,082 homes through the MLS in June; 2.4% more than in June 2017 and a 17.6% jump from May 2018.
The market continues to be volatile following policy changes including the B-20 mortgage guidelines which tightened lending conditions for borrowers.
“Home ownership has proven to be a positive long-term investment. After some adjustment to the Fair Housing Plan, the new Office of The Superintendent of Financial Institutions (OSFI) stress test requirement and generally higher borrowing costs, home buyers are starting to move back into the market, with sales trending up from last year’s lows. Market conditions appear to be tightening, with sales accounting for a greater share of listings, as new listings have dropped compared to last year,” said new TREB president Garry Bhaura.
Average selling price rises
There was a 2% year-over-year rise in average selling price to $807,871 which means a 3.4% rise month-over-month following preliminary seasonal adjustment.
The HPI was flat month-over-month and down 4.8% year-over-year. TREB says that the difference between HPI and average selling price is likely to be due, in part, to a different mix of homes sold on a year-over-year basis. June 2018 saw a larger share of low-rise homes sold.
“The expectation is to see improvement in sales over the next year. Over the same period, however, it is likely that issues surrounding the supply of listings will persist. This suggests that competition between buyers could increase, exerting increased upward pressure on home prices. With a new provincial government in place and municipal elections on the horizon, housing supply should be top-of-mind for policy makers,” said Jason Mercer, TREB’s Director of Market Analysis and Service Channels. By Steve Randall.
Economic Highlights
Find out here what will happen with interest rates this week
There is a sense you could hear a pin drop in most offices around the country this week. This past week started off with the Canada Day Holiday, which is one of the best holidays, followed by the American July 4th holiday, in which everyone in the Great White North was glued to their TV’s watching Joey Chestnut devour 74 hot dogs. A world record. Surprisingly, his favourite condiment is water. I am more of ketchup and mustard guy myself. Needless to say, when marketing came knocking for commentary, I said, of course I’ll write it. It’s because I care. A lot.
Interest Rates
It’s been two weeks since the last commentary so it would be good to recap the major benchmark bond yields. The 5 year Government of Canada benchmark bond is currently yielding 2.06% which is only about 1 bp tighter from its yield of a week ago. The 10 year is yielding 2.13% and was about 2.16% about a week ago. For context, a year ago the 5 year was yielding 1.47% and the 10 year was yielding 1.88%, while there have been 3 overnight rate hikes totaling 0.75% by the Bank of Canada in the interim. Clearly, there is nothing game breaking in the moves in the interest rates in the last week, although it is worth reiterating that 5 and 10 year yields are not perfectly correlated to increases in the overnight rate. The last year had an increase of 0.75% in the short-term overnight rate, while the 5 year only increased +0.59% and the 10 year +0.26%. That’s worth keeping in mind if you are currently looking at borrowing money over GoC’s or CMB’s.
Bank of Canada Meeting Next Week
I’ve never taken a journalism course, but I do have twitter so I know how important it is not to bury a lead. So I won’t. Most market participants are pricing in and anticipating for, an interest rate hike by the Bank Of Canada of 0.25% next Wednesday. Currently, the market (using overnight interest rate swaps) has the probability at 87.5% for a hike next week, which seems all but certain. Mid-last week however there was still some uncertainty on what the Bank would do but some economic data came out that cleared the air.
Stephen Poloz, the Bank of Canada Governor, gave a speech last Wednesday on the topic, “Let me be clear: From Transparency to Trust and Understanding”. For something titled let me be clear, the market took it as anything but and everyone was notably frustrated about it. His speech gave rationale on why heavy-handed forward guidance (by the BoC) could dampen the information in financial markets if data surprises occur, although the title of the speech seemed like a bit of a misnomer.
What was clear came out last Friday in GDP numbers and the 2nd quarter Business Outlook Survey (BOS), which both moved the interest rate hike to a near certainty. We had GDP beat Month-over-Month consensus growth by 0.1%, which kept the year-over-year GDP growth number in line with the BoC’s estimates of 2.5%. The Q2 Business Outlook Survey further cemented that the economy is doing well enough in the BoC’s eyes to warrant further interest rate increases. Firms surveyed were reporting robust sales outlooks which was supported by both foreign and domestic demand, which was shocking to me until I read that this survey was conducted before the May 31st U.S steel tariffs. Also notably in the report, input prices are expected to increase while inflation expectations are also expected to increase. This all pushed the BOS Index to near-record levels, which shows strong business optimism.
Finally, this morning brought the last major piece of economic data before the rate hike next Wednesday. Employment numbers were released which I saw summed up as ‘fine’. They weren’t the best, but they aren’t that bad either. Kind of like England’s current World Cup campaign – they may just get the job done next week. Net change in employment grew by 31.8K compared to the 20.0K surveyed. On the flipside, unemployment was 0.2% higher than expected at 6% vs 5.8%. How that happens is there was a surge in the labour force participants which buoyed the unemployment rate higher. Initial reaction to the job numbers looked to be shrugged off and there was nothing in the numbers to change the course next week.
All this being said, I am not a mind reader so if the Bank of Canada doesn’t raise interest rates next week and you have a large basket of interest rate derivatives pricing in a hike, why are you reading this and you can send your complaints to:
Bank of Canada
234 Wellington Street
Ottawa, Ontario, Canada
K1A 0G9
By Andrew Masliwec, Analyst, First National FinancialCapital Markets.
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.
 |
| Terms | Posted
Rates |
Payment
Per $100k |
Our Rates | Payment
Per $100k |
Savings |
| 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: http://www.iMortgageBroker.ca |
Other Industry News & Insights
Homebuyers overestimate impact of foreign investors
Homeowners in Vancouver and Toronto believe that foreign investors are driving up home prices but that isn’t backed up by official figures.
A new Housing Market Insight from the CMHC shows that 68% of survey respondents in Vancouver and 48% in Toronto think foreign investors have a lot of influence on home prices in their cities.
However, official Statistics Canada data shows that total non-resident ownership is just 4.8% of homes in Vancouver and 3.4% in Toronto.
Vancouverites are more likely to believe that investors have more influence on home prices than supply restraints and demand-side factors.
Buyers are also spending more than planned in Canada’s two hottest housing markets; 48% of respondents in both cities said they had exceeded their budgets, twice as many as those who did so in Montreal.
“The survey allows us to better understand how home buying is influenced by attitudes and perceptions, giving rise to sustaining local narratives. As we can see, psychological drivers can be at odds with economic fundamental drivers,” said Guillaume Neault, Senior Manager, Analytics, Canada Mortgage and Housing Corporation. By Steve Randall.
Roundup of the latest mortgage and housing news.
From Mortgage Professionals Canada.
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