RESIDENTIAL  MARKET UPDATE

Industry & Market Highlights 

Is coronavirus about to prompt a house price crash?

The impact of the COVID-19 coronavirus outbreak is being felt across the world, but what will it do to Canada’s housing market?”

The short answer, of course, is that no one really knows, but the latest assessment of the housing market by RBC Economics suggests that things are about to get rocky.

Senior economist Robert Hogue said that the “light was on” in the housing market in February but that it is “about to be turned off.”

“The world has changed in March,” he wrote in the RBC Monthly Housing Market Update. “And so has the outlook for the Canadian housing market.”

Hogue said that fears of the spread and social distancing are set to decimate house viewings and buyers are likely to take a wait-and-see approach.

Then there’s the impact that Canadians’ investments have suffered from falling asset values. Hogue notes that some homebuyers would be relying on these investments to fund their down payment.

Despite mortgage rates remaining low, especially following recent interest rate cuts and the potential for more, consumer confidence is likely to outrank them.

Sales plunge but what about prices?

Hogue’s outlook is that home sales will plunge in the coming weeks before a rebound at some (undeterminable) point.

But he expects home values nationally to be resilient with tight supply in many markets providing a cushion against correction.

For Toronto, Vancouver, Ottawa, and Montreal, recent price escalations are predicted to cool but there could be tougher conditions for the Prairies where market conditions are softer and the oil price fall will be a further blow.  By Steve Randall.

Shock move by Fed over the weekend

For the second time this month, the Federal Reserve cited the deleterious impact created by the coronavirus in announcing a surprise cut to the US federal funds rate, lowering it to a range of 0% to 0.25%.

“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” said the central bank’s policymaking Federal Open Market Committee (FOMC) in a statement. “Global financial conditions have also been significantly affected.”

Although the Fed insisted the national economy “came into this challenging period on a strong footing” and the job market remained strong, it also observed that “business fixed investment and exports remained weak” while the energy sector “has come under stress,” ultimately concluding that the “effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook.”

The Fed is also expected to purchase up to $500 billion in Treasury securities and $200 billion in mortgage-backed securities, returning to the policy of quantitative easing. The FOMC was near-unanimous, with only Cleveland Fed CEO Loretta J. Mester opposing the rate cut.

Mike Fratantoni, senior vice president and chief economist for the Mortgage Brokers Association (MBA), welcomed the announcement and predicted that it will help strengthen the housing market.

“By the end of last week, markets across the board were showing increasing signs of stress, with unprecedented volatility and widening spreads,” he said. “Today’s dramatic action by the Fed, lowering rates to zero, buying Treasuries and MBS, and encouraging banks to go to the discount window, will significantly reduce stress in the system. MBA expects these actions will lower mortgage rates, helping homeowners save money through refinancing, and thereby providing a boost to the broader economy.”  By Phil Hall. 

Mortgage stress test changes are on hold until further notice

The planned change and review of the mortgage stress test has slipped down the priority list for the Canadian government due to the COVID-19 coronavirus crisis.

Until the outbreak, it was expected that Office of Financial Sanctions Implementation (OFSI) would consider changes after a consultation with stakeholders. It was hoped this would make the rate used to determine affordability for uninsured mortgages more dynamic instead of its current rigidity.

But OSFI said late Friday that, in unison with other government agencies, it was focusing on ensuring the resilience of Canadian financial institutions and the financial system.

“As a result, the benchmark rate as currently published by the Bank of Canada will remain in force until further notice,” OSFI said in a statement.

But it’s not just the review for uninsured mortgages that are affected.

“The Minister of Finance has also announced the suspension of the April 6, 2020 coming into force of the new benchmark rate used to determine the minimum qualifying rate for insured mortgages,” the statement clarified.

Maintaining credit supply

To ensure that Canadian financial institutions have enough liquidity to continue lending, OSFI has also cut its buffer requirements.

The Domestic Stability Buffer, which large financial institutions are required to maintain in case of financial crisis, was due to be 2.25% as of the end of April 2020 but this has been cut to 1% immediately and remain in place for at least 18 months.

The regulator says the release of banks’ funds from the buffer should be used for lending to businesses and households and not for shareholder distributions.

OSFI says that financial institutions’ dividend increases and shareholder buybacks should be halted.  By Steve Randall. 

Bank of Canada acts to shore up funding liquidity

The Bank of Canada is to help bolster financial stability by injecting liquidity into the funding markets.

In a similar move to the Fed, the BoC is acting to support interbank funding amid concerns about tightening credit resulting from the coronavirus outbreak.

“The Bank of Canada continues to closely monitor global market developments and remains committed to providing liquidity as required to support the functioning of the Canadian financial system,” a BoC statement said late Thursday.

The central bank is increasing the frequency at which it buys government bonds and is also stepping up its bond buybacks program whereby it sells newer bonds for older issues.

This will add billions of dollars into markets.

Along with further expected cuts in interest rates, the bank hopes that the moves will avoid a credit crunch which exacerbated the Great Recession a decade ago.

“In addition to using just the blunt tool of lowering interest rates, they’re trying to help with liquidity in the market,” Ian Pollick, head of rates strategy at CIBC in Toronto told Bloomberg. “They’re just liquefying the system. It’s consistent with moves we saw earlier today with the Fed.”

Federal finance minister Bill Morneau tweeted that “We are seeing volatility in the markets due to COVID-19. In the face of this uncertainty, we will continue to protect the health of Canadians and our economy. I want to tell all Canadians: we have your back.”  By Steve Randall. 

Canadian economy severely tested for another quarter

The Canadian economy had a rocky start this year after already showing significant signs of slowing down at the end of 2019. Indeed, economic growth was only 0.3% in the fourth quarter. This poorest performance of the year, while still in line with Bank of Canada forecasts, brought GDP growth to only 1.6% in 2019.

Economic activity was penalized last year by the decline in business and residential investment, by less than 1% each. Consumer and public spending were the driving forces of the economy, although their growth also slowed.

The economic rebound that might have been expected at the start of the year will undoubtedly be delayed. The Canadian economy is not out of the woods and growth will probably continue to be held back by temporary factors, at least in the first quarter.

Growth still victim of temporary disruptions

Fears about the coronavirus (Covid-19) are growing and the global pandemic could stifle investment and slow national industrial activity. The impact of the pandemic is already being felt on stock markets, and the Chinese slowdown is hurting many commodities—including oil. Rail blockades have also weakened Canada’s economic growth.

From the coronavirus to a crude oil price war

The coronavirus crisis has affected the oil market. The slowdown in oil demand caused crude oil prices to plunge 35% between early January and early March. At the time, OPEC was expected to intervene to counter the drop in global prices.

At its latest meeting with its partners, however, OPEC did not get Russia to go along with its proposal to withdraw an additional 1.5 million barrels per day from the market in order to rebalance supply and demand and bolster crude prices. In addition, no agreement was reached on extending the current cuts, so as of April 1, 2020, producers will be able to pump as much oil as they want.

In retaliation for Russia’s refusal to cooperate, Saudi Arabia launched a full-scale price war on Monday, March 9, selling its crude for $29.05 per barrel to capture market share from its Russian competitor.

The last crude oil price war occurred in 2014 and plunged Canada into a technical recession. Given its importance to some Canadian provinces and the country terms of trade, the current collapse of crude oil prices will further limit growth this year. The question now is how long this price war can last. To learn about it, check out our article of the month on oil.

Rail blockades to derail the economy?

Canada’s rail system is at the heart of the Canadian economy. For this reason, blocking railways that carry freight from coast to coast is yet another obstacle to growth in the first quarter of 2020 at a time when the economy must already cope with disruptions caused by the coronavirus and low oil prices. (For more details, see this month’s featured article). Overseas containers piled up in ports in February, and retailers struggled to get adequate supplies.

Besides the transportation sector, this rail blockage will have an impact on a number of industries. Manufacturing, energy, chemicals, raw materials and agriculture are all affected by the rail shutdown.

The layoffs announced by companies directly affected by the blockades are proof of their impact on the economy. Canadian National temporarily laid off 450 workers. VIA Rail followed suit with temporary layoffs of nearly 1,000 employees. Despite these economic setbacks, the Canadian economy created more than 30,000 jobs in February.

This is the second rail shutdown in just a few months. Last November, when a CN strike partially suspended rail transportation in the country, the GDP generated by the transportation industry fell by 0.6%. This slowdown also coincided with a decline in international trade. The stoppage affected rail shipments and, as a result, both exports and imports.

However, the November drop in GDP from the transportation industry was more than offset by a 1.5% increase in December. The impact of rail was also moderated by increased use of other means of transportation, such as air transport.

This time around, these alternatives could further mitigate the economic impact of the blockades. A number of companies have resorted to trucking for their supplies, and the passenger air transportation network has partially compensated for the closure of a few key routes. Indeed, Porter Airlines reported that demand for its Montreal-Ottawa-Toronto flights rose strongly. However, these two options remain significantly more expensive than rail transportation for both businesses and travellers.

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By BDC Business Development Bank of Canada.

Canada’s housing starts down in February

Last month saw a decline in housing starts, according to new data form the Canada Mortgage and Housing Corporation (CMHC).

The seasonally adjusted annual rate (SAAR) of housing starts totaled 210,069 units in February, a 1.9% decline from the 214,031 units recorded in January. Urban starts were also down by 1.9% from 203,220 units in January to 199,304 units in February. Within the urban sector, multiple urban starts fell by 6.1% to 146,072 units while single-detached urban starts increased by 11.9% to 53,232 units. Rural starts were estimated at a seasonally adjusted annual rate of 10,765 units.

The SAAR measurement of housing starts has seesawed over the past few months: January saw an 8.8% increase from December, but December recorded a 3% decline from November.

“The national trend in housing starts declined in February, driven by lower-trending multi-unit starts.” said Bob Dugan, CMHC’s chief economist. “Single and multi-unit starts in Toronto both trended lower, while activity in Montréal declined due to lower-trending multi-unit starts. This offset a slight up-tick in Vancouver, which follows four consecutive declines in that CMA.”

Among the provinces, Saskatchewan recorded the steepest percentage decline in month-over-month housing starts, toppling from 3,270 units in January to 1,966 in February, a 40% fall. Quebec had the second greatest percentage decline during that period, with 44,991 in February compared to 73,304 in January, a 39 percent plummet.

On the flip side, Nova Scotia recorded the greatest percentage increase between the months: a 227% leap from the 2,378 housing starts in January to 7,771 in February. Prince Edward Island also recorded a three-digit percentage upswing, rising 163% from 429 housing starts in January to 1,127 last month.

Among the nation’s major metropolitan areas, Guelph recorded the steepest percentage decline with an 80% drop from 667 housing starts in January to 133 last month. Saguenay recorded the second steepest drop, with a 72% plunge to 313 housing starts in February from 1,117 in January.

The major metropolitan areas that saw the most vibrant activity in housing starts during the year’s first two months included Halifax (a 340% increase form 1,319 in January to 5,800 in February), Windsor (a 331% spike from January’s 264 total to 1,137 in February) and Hamilton (a 307% rise from 1,734 in January to 7,061 in February).

The CMHC data follows a recently published report by Altus Group that found total housing starts in Canada during the 2010s were virtually identical to the previous decade. According to Altus Group’s data, housing starts reached 201,000 units on an average by the end of the 2010s, tying for the second-best decade ever recorded, after the 1970s. The decade recorded the lowest volume of housing starts in 2013, with just under 188,000 units, while the highest starts of the decade were recorded in 2017 at 220,000 units. The 2010s were also the strongest decade ever for apartment starts, with around 92,000 apartment units being started and most of the focus being given to condominium apartments developments.

“In general, the 2010s were not a very volatile period for annual total housing starts at the Canada-wide level,” the report stated. “In fact, it was the least volatile of any of the past six decades for annual total housing starts.”  By Phil Hall. 

Economic Highlights

Fed Cuts Overnight Rate One Percentage Point But Markets Plummet

In an unprecedented Sunday afternoon meeting, the US Federal Reserve cut their key policy rate by 100 basis points (bps) to a level of 0%-to-0.25% (see chart below). Also, the Committee announced increased access to the discount window where the Fed makes loans to banks. The Fed is the lender-of-last-resort and is signalling that it will provide liquidity wherever needed. As well, with interest rates already so low, the Fed is well aware that rate cuts can only do so much. Thus, they are returning to quantitative easing–the buying of large volumes of U.S. government Treasury bills and bonds as well as mortgage-backed securities (MBS), to inject liquidity into the financial system.

The Treasury and US MBS markets are usually the deepest, most liquid markets in the world. But over the past two weeks, liquidity has dried up. Financial instability has risen sharply with the high level of volatility. Banks have experienced significant withdrawals as consumers are hoarding cash like everything else. The cost of funds to banks has risen sharply because of the enhanced perception of risk. With the collapse in oil prices, banks exposed to the oil sector are building up reserves for nonperforming loans. As businesses everywhere in nearly every sector shutdown, the risk of delinquencies rises further. Consumers who are housebound spend less money, and those who are freelancers or hourly wage earners might not get paid. Moreover, the shuttering of schools puts an added burden on parents who have no other daycare options for their kids.

All of this disruption, which according to the Center for Disease Control, could last months–the CDC recommended yesterday the shutdown of meetings of more than 50 people for eight weeks–has led to rising concern about the riskiness of banks. Bank shares have plummeted, and the yields on bank bonds have surged. Besides, banks and other mortgage lenders are fearful of being inundated with requests for refinancing, especially in the US, where penalties for breaking a mortgage are much lower than in Canada. Because of the refinancing surge in the US, the price of MBSs has fallen sharply, raising their yields and making the market highly illiquid.

The rising risk premiums, likely recession and illiquidity are causing banks in Canada and the US to raise some mortgage rates. Lenders are tightening the discount off the prime rate on variable-rate mortgage loans. Some fixed rates have edged higher as well. Such spread widening between mortgage rates and government yields happened during the financial crisis. Bank balance sheets will expand as troubled businesses and consumers extend their borrowings on their open lines of credit. Many will be unable to make timely interest payments. Loan loss reserves, already climbing, will rise further. Liquid deposits will be depleted as many are forced to live off of savings while shying away from selling stocks at markedly depressed prices.

These are not normal times. The Fed’s actions did nothing to calm markets. Indeed, stocks and bond yields plummeted in overnight trade, and the stock markets opened sharply lower in North America. The S&P 500 opened down over 8% while the TSX opened down 11%, triggering a circuit-breaker time out. This is the third time in a week the circuit breaker has hit. The TSX is down roughly 35% from its recent high (see chart below). The S&P 500 is down over 20%. The relative underperfomance of the Canadian stock market reflects our out-sized representation of the energy sector. The two weakest sectors in the TSX are the energy and financial sectors.

The world knows that the Fed and other central banks are running out of ammunition. Governor Powell said yesterday that he would not take the key fed funds rate into negative territory but instead would use “forward guidance” and asset purchases (quantitative easing) going forward.

The good news is that the banks are highly capitalized and much more resilient than during the financial crisis. Central banks since that time have put in place measures to monitor financial stability. Last Friday, the Canadian Office of the Superintendent of Financial Institutions (OSFI) reduced the capital requirements for Canadian banks to free up $300 billion for banks to support troubled borrowers. OSFI warned against the use of these funds to buy back stocks or raise dividends.

OSFI also suspended the proposed revision in the qualifying mortgage rate slated to begin April 6. The posted mortgage rate, published weekly by the Bank of Canada, will remain the qualifying mortgage rate. It is currently 5.19%, but it is expected to fall this week to around 4.95%.

But in these extraordinary times, there is a loss of confidence in the financial system. Some are calling for a full shutdown of the stock markets–but imagine the panic if no one could sell assets. There would truly be a run on the banks. Now is not a time to panic.

The Canadian Housing Market

The Canadian Real Estate Association announced this morning that home sales recorded over the Canadian MLS Systems rose 5.9% in February, marking one of the more substantial month-over-month gains of the past decade. Actual (not seasonally adjusted) sales activity stood 26.9% above year-ago levels–keeping in mind that activity was quite weak one year ago. February 2019 marked a decade-low for the month, so a good part of the significant y-o-y gain reflects low levels of activity recorded at the time. February 2020 also benefited from an additional day due to the leap year.

The CREA President, Jason Stephen, said, “Home prices are accelerating in markets where listings are in increasingly short supply, specifically in Ontario, Quebec and the Maritimes which together account for about two-thirds of national sales activity. Meanwhile, ample supply across the Prairies and in Newfoundland and Labrador means increased competition among sellers.”

The number of newly listed homes jumped 7.3% in February compared to January, more than erasing the declines of late last year. New supply gains were posted in some large markets, including the Fraser Valley, Calgary, Edmonton, the GTA, Hamilton-Burlington, Kitchener-Waterloo, Windsor-Essex, Ottawa and Montreal.

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose 0.7% in February 2020 compared to January, marking its ninth consecutive monthly gain. The actual (not seasonally adjusted) national average price for homes sold in February 2020 was around $540,000, up 15.2% from the same month the previous year. See the table below for the regional move in prices.

But this is old news, particularly given all that has happened in the past two weeks. What comes next for the housing market? That depends on the course of the pandemic. Lower interest rates would typically be great news for the housing market, particularly for first-time homebuyers. But social distancing is hardly consistent with open houses and home shopping.

Moreover, volatility and instability reduce consumer confidence. Buyers that parked their downpayment savings in the stock markets have lost nearly a third of their money on paper. And how many sellers want a trail of strangers wandering through their homes during the pandemic. So the housing market, like everything else, is likely going to slow over the near term.

The Bank of Canada is hopeful that its rate cuts will stabilize the housing market from what might have otherwise been a substantial shutdown. Lower rates will filter through to lower monthly payments for floating-rate mortgage borrowers. Expect the Bank to cut rates again to near-zero levels, following in the footsteps of the Fed. So far, as of this writing, the Canadian banks have not responded to Friday’s BoC rate cut. The prime rate went down a full 50 bps on March 5 after the Bank cut its key rate by that amount on March 4. But so far, the Big-Six banks have not responded to the 75 bps cut three days ago.

By Dr. Sherry Cooper. Chief Economist, Dominion Lending Centres.

Residential Market Commentary – Coronavirus treatment has side effects

The Coronavirus and the broader economic concerns around the world have seen the Bank of Canada make two, 50 basis point cuts in its benchmark interest rate in the last two weeks.  It now stands at 0.75%.  And it is very likely to go lower.

The emergency rate cut on Sunday that dropped the U.S. Federal Reserve rate to, essentially, zero all but guarantees the Bank of Canada will cut rates further.  Market watchers predict the overnight rate will drop to 0.25%, and that could happen at any time.

The cuts are part of a larger tool kit of measures being unpacked to support the broader economy as the Coronavirus pandemic spreads.  One of the tools that will not be used, though, is the easing of the mortgage stress test.  And there are mixed reactions to what all this means for the housing market.

The most predictable reaction is: hot markets will get even hotter.  Lower interest rates tend to improve affordability and draw more buyers into the market.  Given the tight supply of housing across the country, though, it seems certain there will be renewed price acceleration.

Commenting on the first 50 bps cut made on March 4th, Phil Soper, CEO of real estate giant Royal LePage speculated it could act as a “relief valve” for overheated markets which have seen a lot of “pent-up” demand.  In an interview with the Financial Post he was not explicit about how the relief valve would work, but he hinted at a possible increase in housing supply.

On Friday the 13th, during the announcement of the emergency 50 bps cut, Bank of Canada Governor Stephen Poloz made it clear the BoC’s concerns about the housing market have been overtaken by worries about the Coronavirus.  But, during the announcement of the March 4th cut, Poloz said that move could help stabilize the housing market.  He cited declining consumer confidence in the overall economy as a factor that could have led to a housing market slump.

However, those same consumers could just as easily stay away.  Social distancing, self-isolation and fears of a recession could see purchasers putting their buying plans on hold.  The stock market plunge has stymied many people who were working to build their down payment through investments.

The potential decline in buyers and forecasts of a recession already have some sellers rethinking their plans.  An absence of multiple offers and fears that the value of their property may be declining could delay plans to sell, or even see properties taken off the market, further tightening supply.  By First National Financial. 

Mortgage Interest Rates

The Bank of Canada today lowered its target for the overnight rate by 50 basis points to ¾ percent, effective Monday, March 16, 2020. The Bank Rate is correspondingly 1 percent and the deposit rate is ½ percent.  Prime lending has lowered an additional 50 bps is 2.95%.  What is Prime lending rate? The prime rate is the interest rate that commercial banks charge their most creditworthy corporate customers. The Bank of Canada overnight lending rate serves as the basis for the prime rate, and prime serves as the starting point for most other interest rates.  Some Banks/Lenders have followed suit and made announcements of dropping their Prime lending rate in correlative response.  Bank of Canada Benchmark Qualifying rate for mortgage approval is still at 5.19% but changes to the mortgage qualifying rate is coming into effect April 6, 2020: Instead of the Bank of Canada 5-Year Benchmark Posted Rate, the new benchmark rate will be the weekly median 5-year fixed insured mortgage rate from mortgage insurance applications, plus 2%. 

Fixed rates halted moving down further due to the sever market volatility.  Some lenders started increasing interest rates due to liquidity concerns.  Lenders have started cutting back on the deep discounts offered by some for variable rates making adjustable variable rate mortgages less desirable.

View rates Here – and be sure to contact us for a quote as rates are moving faster than can be updated.

Ensure that your current mortgage is performing optimally, or if you are shopping for a mortgage, only finalize your decision when you are confident you have all the options and the best deals with lowest rates for your needs.

If you have concerns about your mortgage and the rapidly changing market, please contact us to discuss your needs, concerns and options in detail to protect your best interest.

Here at iMortgageBroker, we love looking after our clients needs to ensure your best interest is protected.  We do this by shopping your mortgage to all the lenders out there that includes banks, trust companies, credit unions, mortgage corporations & insurance companies.  We do this with a smile, and with service excellence!

Reach out to us – let us do all the hard work in getting you the best results and peace of mind!

For Continued Updates on The COVID-19 Pandemic, please click below:

Middlesex Health Unit

https://www.healthunit.com/news/novel-coronavirus

Ontario Health

https://www.ontario.ca/page/2019-novel-coronavirus

Government Canada Public Health

https://www.canada.ca/en/public-health/services/diseases/coronavirus-disease-covid-19.html

World Health Organization: 

https://www.who.int/emergencies/diseases/novel-coronavirus-2019

Factual Statistics Coronavirus COVID-19 Global Cases

https://gisanddata.maps.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6

https://www.youtube.com/watch?v=qgylp3Td1Bw&app=desktop

Industry & Market Highlights 

Coronavirus COVID-19:  Helping our Clients

As this COVID-19 pandemic continues to evolve, we want you to know that we will be doing everything we can to support our customers and clients through this difficult time, both with their financial needs and also their safety and well-being.  

iMortgageBroker is setup to service our clients all over Ontario, whether you prefer in person, or remotely: virtually or over the phone.  As long as you have access to a phone and also internet, or scan email, or fax, or courier services, or can drop documentation at our office – we have you covered.

We are actively monitoring the Coronavirus (COVID-19) situation and are taking precautionary measures to help keep our communities safe.  We are implementing best practices to prevent the spread of the virus so that we can be there to help when you need us.

To help with prevention for in person meetings we are taking these added precautions to keep our clients and agents safe:

Staff will be wearing face masks for in person face-to-face consultations and meetings, and will be avoiding direct contact.

We follow the local Municipal Health Unit directions for prevention of spreading germs with frequent disinfection of used surfaces and washing of hands.  See the details here.

We ask our customers who are concerned about their health, or who are concerned that you may have contracted the virus to allow us to serve you remotely.  PLEASE follow the Government Canada Public Health Agency directions on how to protect yourself and others.  See the details here.

Thank you for doing your part to help keep our communities safe, and for supporting one another as we navigate through this difficult time together.

The Public Health Agency of Canada recommends that we all take the following everyday precautionary measures to help prevent the spread of germs and viruses:

• Wash your hands thoroughly and often with soap and water for at least 20 seconds. If soap and water are not available, use an alcohol-based hand sanitizer
• Avoid touching your face, eyes, nose and mouth
• Avoid close contact with people who are sick
• Stay home when you are sick
• Clean and disinfect frequently touched objects and surfaces
• Cover your mouth and nose with your arm when coughing and sneezing
• Avoid all non-essential travel

One last thought:  It is okay to say “Hi” to new faces and old friends during a health pandemic and show you care without physical touch.  A sincere smile, kinds words and caring for others goes a long way!

Extraordinary Coordinated Policy Actions To Ease the Economic Impact of Pandemic In Canada

Prime Minister Justin Trudeau said Canada would introduce a “significant” fiscal stimulus package, as part of a coordinated effort with other Group of Seven countries to counter the virus-driven global economic slowdown and calm markets. In an exceptional press conference held at 2 pm today, Finance Minister Morneau sat at the side of the Governor of the Bank of Canada, and the head of the Office of the Superintendent of Financial Institutions (OSFI) to announce measures to soothe financial markets, boost confidence and support the Canadian economy.

Only nine days after the Bank of Canada cut the overnight policy rate by 50 basis points to 1.25%, Governor Poloz announced another 50 bps reduction in the policy rate to a level of 0.75%. Here is the Bank of Canada’s official statement:

• “The Bank of Canada today lowered its target for the overnight rate by 50 basis points to ¾%. The Bank Rate is correspondingly 1%, and the deposit rate is ½ percent. This unscheduled rate decision is a proactive measure taken in light of the negative shocks to Canada’s economy arising from the COVID-19 pandemic and the recent sharp drop in oil prices.
• It is clear that the spread of the Coronavirus is having serious consequences for Canadian families, and for Canada’s economy. In addition, lower prices for oil, even since our last scheduled rate decision on March 4, will weigh heavily on the economy, particularly in energy-intensive regions.
• The Bank will provide a full update of its outlook for the Canadian and global economies on April 15. As the situation evolves, Governing Council stands ready to adjust monetary policy further if required to support economic growth and keep inflation on target.”
• The Bank has also taken steps to ensure that the Canadian financial system has sufficient liquidity. These additional measures were announced in separate notices on the Bank’s website. The Bank is closely monitoring economic and financial conditions, in coordination with other G7 central banks and fiscal authorities.”

At the press conference, a reporter asked Poloz whether he would take the policy rate down to negative levels. He responded that he “does not like negative interest rates” and that “there is sufficient fiscal firepower in Canada” so that, hopefully, “negative interest rates are not likely to be needed.”

He also commented: “Combined with the other measures announced today, lower interest rates will help to support confidence in businesses and households. For example, borrowing costs will be lowered both for new purchases of homes and through variable-rate mortgages and mortgage renewals.”

Today, the Bank also announced a new Bankers’ Acceptance Purchase Facility. This facility will support a key funding market for small- and medium-sized businesses at a time when they may have increased funding needs, and credit conditions are tightening. The facility will buy 1-month BAs starting the week of March 23. More details are forthcoming. This comes in addition to introducing a 6-month and 12-month bi-weekly repo operation yesterday.

Finance Minister Morneau announced he would deliver a fiscal stimulus package next week that will include an additional $10 billion in new funding to the country’s two business financing agencies — the Business Development Bank of Canada and Export Development Canada. This announcement follows $1 billion of funding for the country’s public health response outlined earlier this week, which came with some modest measures to support disrupted workers.

So significant fiscal stimulus measures are coming next week. There were no details on the size of these measures, but something on the order of 1% of GDP seems like a reasonable estimate. Mr. Morneau also noted that the government is looking at providing direct aid to individuals and families. The floodgates are about to be flung open.

The final bit of stimulus came from OSFI’s lowering capital requirements for the Big Six Canadian banks. Jeremy Rudin, head of Canada’s banking regulator, announced he would reduce the nation’s “domestic stability buffer” by 1.25 percentage points of risk-weighted assets, effective immediately. The buffer will drop to 1%, from its prior level of 2.25%. He said that the government is looking at providing direct aid to individuals and families. This action will free up about $300 bln in funds for the big banks to lend. It will also offer some solace to the stock market, where bank stock prices have plunged in the past two weeks. Concern about the Canadian banks’ balance sheets is always rife when markets are stressed.

In another move, the government announced that it is suspending consultation on the proposed change to the uninsured mortgage stress test. The insured stress test revision will start on April 6 as planned. OSFI wants to wait until markets return to more normal activity before making a final decision on the insured qualifying rate. Hopefully, banks will cut their posted mortgage rates in response to the combined 100 bp decline in the overnight rate and the plunge in 5-year bond government yields (see chart below). As of yesterday, March 12, the BoC Daily Digest held the conventional mortgage rate (5-year, aka the posted rate) steady at 5.19%.

We will now watch what the Canadian banks do in response to these actions. Will they cut their prime rates another full 50 basis points? And will they pass that on to borrowers of variable-rate mortgage money? Monday will be an interesting day.

Bottom Line: This is an excellent start to getting ahead of what will likely be a very challenging period for the Canadian economy. However, we need to see more of the details. Look for additional fiscal stimulus to be announced in the coming days and weeks (from the federal government as well as the provinces), and expect the Bank of Canada to ease policy rates another 50 bps to a level of 0.25% for the overnight benchmark rate by April. And, if conditions deteriorate more than anticipated, there’s room for the BoC, government and OSFI to do more.

This is in direct contrast to the inept and disjointed policy response south of the border. Hopefully, the financial markets will take note that Canada is far better equipped both financially as well as from a public health perspective than our recent stock market performance has suggested.

 

Residential Market Commentary – Buying season off to a brisk start

The annual spring home buying season seems to have jumped the gun and is already out of the blocks.  Canada’s biggest and busiest markets are reporting significant sales and price increases based on activity recorded even before the announced easing of the B-20 stress test and the, coronavirus inspired, drop in the Bank of Canada rate.

February figures from Greater Vancouver show a 45% sales increase over a year earlier.  Toronto is reporting a 46% jump.  Calgary, which has been struggling because of the depressed energy sector, saw a 23% increase.  Montreal continues to boom with a record setting 5,334 sales in February – a 23% increase over a year ago.

Of course, last February’s numbers were extraordinarily low, which takes some of the shock value out of the increases.  However, prices are seeing renewed acceleration.

Vancouver’s MLS composite benchmark price stands at $1.02 million.  That is just 0.3% higher than a year ago, but it is a 2.7% increase over the past six months.  In Toronto the composite benchmark price increased by 10.2%.  The average sale price for all types of housing rose to $910,000.  (The average price for a detached home has, once again, topped $1 million.)  Montreal’s median price is up about 12%.  Calgary remains, essentially, flat.

Markets across the country are tightening as sales outpace new listings, signalling the strong probability of even greater price acceleration.

Given the recent actions of the BoC, the announced intentions of the federal government, and the slumping bond market it seems unlikely there will be any move to step on the brakes.  By First National Financial. 

Ontario’s Property Assessment System, Re-assessment of all properties in Ontario in 2020

The Municipal Property Assessment Corporation (MPAC) is an independent, not-for-profit corporation funded by all Ontario municipalities. Our role is to accurately assess and classify all properties in Ontario. We do this in compliance with the Assessment Act and regulations set by the Government of Ontario.

We are the largest assessment jurisdiction in North America, assessing and classifying more than 5.3 million properties with an estimated total value of $2.78 trillion in 2018.

We are accountable to the Province, municipalities and property taxpayers of Ontario through a 13-member Board of Directors. The Board of Directors is comprised of provincial, municipal and taxpayer representatives appointed by the Minister of Finance.

MPAC completes a province-wide Assessment Update every four years based on a legislated valuation date. The valuation date, established by the Ontario government, is a fixed day on which all properties are valued.

The last province-wide Assessment Update took place in 2016, based on a January 1, 2016 valuation date. In 2020, MPAC will update the assessments of all properties in Ontario to reflect a new legislated valuation date of January 1, 2019. These assessments will be in effect for the 2021-2024 property tax years.

To provide an additional level of property tax stability and predictability, market increases in assessed value between Assessment Updates are phased in gradually over four years. A decrease in assessed value is introduced immediately.

Annual property assessment increases are revenue neutral, which means they have no impact on the total property tax amount that a municipality might raise. Rather, these changes provide for a redistribution of property taxes within a municipality, based on the value of the property owned. Learn more in this video: https://www.youtube.com/watch?v=xgGbLotF_QQ.

Visit the MPAC Fact Sheet for more information here.

Mortgage Interest Rates

Prime lending has lowered an additional 50 bps is 2.95%.  What is Prime lending rate?  The prime rate is the interest rate that commercial banks charge their most creditworthy corporate customers. The Bank of Canada overnight lending rate serves as the basis for the prime rate, and prime serves as the starting point for most other interest rates.  Bank of Canada Benchmark Qualifying rate for mortgage approval is still at 5.19% but changes to the mortgage qualifying rate is coming into effect April 6, 2020: Instead of the Bank of Canada 5-Year Benchmark Posted Rate, the new benchmark rate will be the weekly median 5-year fixed insured mortgage rate from mortgage insurance applications, plus 2%. 

Fixed rates are moving down further with lower bond yields.  Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages very attractive again.

View rates Here – and be sure to contact us for a quote as rates are moving faster than can be updated.

Ensure that your current mortgage is performing optimally, or if you are shopping for a mortgage, only finalized your decision when you are certain you have all the options and the best deals with lowest rates for your needs.

Here at iMortgageBroker, we love looking after our clients needs to ensure your best interest is protected.  We do this by shopping your mortgage to all the lenders out there that includes banks, trust companies, credit unions, mortgage corporations & insurance companies.  We do this with a smile, and with service excellence!

Reach out to us – let us do all the hard work in getting you the best results and peace of mind!

 

Market interest rates have fallen sharply since the coronavirus-led investor flight to the safety of government bonds. The 5-year government bond yield–a harbinger of conventional mortgage rates–now stands at 1.34%, down sharply from the 1.60+% range it was trading in before the virus became global news (see chart below)

This morning, one of the Big-Six banks finally reacted. TD cut its posted 5-year fixed rate to 4.99%. TD’s posted rate had previously been at 5.34%, making this a 36 basis point cut. Other banks had lowered their qualifying rate to 5.19% last July, leading the Bank of Canada to cut its 5-year conventional mortgage rate to 5.19%. This is the qualifying rate under the B-20 rule introduced on January 1, 2018.

On January 24, the Assistant Superintendent of OSFI’s Regulation Sector, Ben Gully, gave a speech at the C.D. Howe Institute suggesting that the B-20 qualifying mortgage rate historically would be no more than 200 basis points above contract rates. He said that OSFI chose the “best available rate at the time.”

He went on to say that for many years, the difference between the benchmark rate and the average contract rate was 200 bps. However, this gap “has been widening more recently, suggesting that the benchmark is less responsive to market changes than when it was first proposed. We are reviewing this aspect of our qualifying rate, as the posted rate is not playing the role that we intended. As always, we will share our results with our federal partners. This will help to inform the advice OSFI might provide to the Minister, as requested in the mandate letter to him.“

By keeping posted rates too high, the Big-Six banks have inflated the qualifying rate, making it more difficult than necessary to pass the stress test to get a mortgage.   While TD’s rate cut is welcome news, its posted rate is still too high by historical standards. Given today’s average contract rates, the posted rate should be at least 20 bps lower still.  Banks have a strong incentive to inflate their posted mortgage rate. For one thing, they are the basis for the calculation of big-bank mortgage penalties. Also, they are the minimum qualifying rate.

The posted rate does not appropriately reflect the state of the mortgage market as few borrowers would pay this rate. Interestingly, banks often move this rate in lock-step, or close to it, reflecting their dominant oligopolistic position in the marketplace.

If a couple of the other big banks follow TD’s lead, the Bank of Canada benchmark rate will be below 5% for the first time since January 2018 when the new B-20 rules were adopted. Lowering the stress test rate by 20 bps from 5.19% to 4.99% would require roughly 1.8% less income to qualify for a mortgage on the average Canadian home price (assuming a 20% downpayment), increasing buying power by 2%. This doesn’t sound like much, but it can have a meaningful psychological impact on already improving housing markets. The latest CREA data shows that the national average home price surged 9.6% year-over-year in December. A lower stress test rate would make a busy spring housing market even more active.

BOC Rate Decision Unchanged

Bank of Canada maintains overnight rate target at 1 ¾ percent

The Bank of Canada maintained its target for the overnight rate at 1 ¾ percent. The Bank Rate is correspondingly 2 percent and the deposit rate is 1 ½ percent.

Monetary Policy Report – January 2020

If the 2019 housing market could be summed up in one word, it would be “rebound” – most of Canada’s major urban markets saw sustained improvement in sales and price growth in the second half of the year, following the slump that plagued activity throughout 2017-2018. Now, as we look forward to 2020, the stage appears set for that upward movement to continue. How will that play out for buyers, sellers and mortgage borrowers? Let’s take a look at some of the most prevalent forecasts for the coming year.

Home sales are recovering from the stress test:

It’s no secret that the federal mortgage stress test, put in place by Canada’s banking regulator in January 2018, took a considerable bite out housing markets across the nation. The test requires insured mortgage borrowers to prove they could qualify for a mortgage at the Bank of Canada’s five-year benchmark rate – currently 5.19 per cent – while non-insured borrowers must qualify either at this rate or their contract rate plus two per cent, whichever is higher.

As a result, fewer buyers found themselves able to get A-level home financing, forcing them to either downsize their home purchase, seek alternative lending options, or sit out the market altogether. In all, Canada Mortgage and Housing Corp. reported the stress test dampened new mortgage lending to the slowest rate of growth in 25 years in 2018, at a pace not seen since the 2008 recession.

However, home buyers began to overcome these adverse effects in 2019; coupled with historically low mortgage rates, that led to a continued improvement in sales in the Greater Toronto and Vancouver areas, as well as a number of secondary markets.

Both CREA and CMHC are forecasting sales and price growth to continue steadily throughout 2020. The national association has called for a total of 530,000 transactions this year, an annual increase of 8.9 per cent, with the national average price climbing 6.2 per cent to $531,000.

“Overall, economic and demographic conditions will remain supportive of housing activity over the forecast horizon, halting the declines in starts, sales and average home prices that followed the highs of 2016-2017,” it states in its most recent Housing Market Outlook. Nationwide, CMHC expects 2020 sales to fall between 480,600-497,700 units, a year-over-year uptick of roughly six per cent. The average price will fall between $506,200-$531,000, up 5.6 per cent-6.7 per cent from this year.

The return of the seller’s market – at least, in Toronto:

While home sales steadily improved over 2019, the same can’t be said for the supply of new listings. According to CMHC, new supply shrank by -2.7 per cent year over year in November, resulting in a national sales-to-new-listings ratio of 66.3 per cent – well within sellers’ market territory. The total months of inventory – the length of time it would take to completely sell off all available homes for sale – currently sits at 4.7 months, its lowest level since 2007.

This was particularly notable in the Greater Toronto Area, where concerns of a supply-and-demand gap have grown over the past year. The end-of-year numbers from the Toronto Real Estate Board reveal the SNLR for the region was 81 per cent, indicating just under 20 per cent of all new listings brought to market were left unsold.

“Strong population growth in the GTA coupled with declining negotiated mortgage rates resulted in sales accounting for a greater share of listings in November and throughout the second half of 2019,” says Jason Mercer, TREB’s chief market analyst. “Increased competition between buyers has resulted in an acceleration in price growth. Expect the rate of price growth to increase further if we see no relief on the listings supply front.”

Cheap mortgages will stick around:

Overall, the BoC will take the same cautious stance it did in 2019; economic factors at home and abroad aren’t quite strong enough to warrant higher interest rates but are stable enough to prevent a rate cut. Avoiding a cut also leaves some wiggle room in case global trade and recession risks do materialize and the BoC needs to act.

Tension over U.S.-China trade relations, as well as growing unease in the Middle East, in particular, will inform the BoC’s careful approach.

Finally, there may also be relief on the way for those who continue to have their affordability hampered by the stress test. In a mandate to the federal Department of Finance, the Prime Minister’s Office has implored the finance minister to explore making the test more “dynamic”.

While it’s not certain what form these changes could take, there’s speculation that its higher-interest qualification hurdle could be reduced, or perhaps adjusted for borrowers with good credit. As well, they could remove the current requirement for borrowers to be re-stress tested when switching lenders, a measure that has drawn heavy criticism from the mortgage industry for discouraging consumer empowerment and competitiveness.

In all, it’s already shaping up to be a busy year for the real estate industry, and it will be interesting to see how growth clocks in within Canada’s major markets as the first year of a new decade unfolds.  By REMonline.com.   Penelope Graham

Residential Market Commentary – Stepping Away

One of the biggest influencers in the Canadian housing industry will be gone by the end of this year.

Evan Siddall, President and CEO of Canada Mortgage and Housing Corporation, has announced that he will not seek to renew his term.  There is no firm date for his departure but Siddall’s current term is up at the end of 2020.

Siddall has been a polarizing figure since he was appointed to the job by the Conservative government of Stephen Harper in 2013.  An outsider, with experience as an investment banker and advisor to the Bank of Canada, Siddall was brought-in to change CMHC’s relationship with the housing industry and give the agency a broader view of the economy.

The housing-driven, economic meltdown that started in the United States in 2008 was still top of mind for the Harper government, which was determined not to go down the same road.  Mortgage heavy household debt remains a key concern for Canadian policy makers.

Siddall was disruptive.  By turns he rubbed home builders, home sellers, mortgage professionals, and politicians the wrong way.  He was a determined advocate for tougher mortgage rules and reducing housing’s influence on the economy.  During his tenure CMHC went from insuring 43% of outstanding mortgages to just 29%; several types of mortgages were removed from CMHC’s insurance programs; default insurance fees and securitization fees increased.

Siddall is the second big name to announce he is leaving.  Late last year Stephen Poloz, Governor of the Bank of Canada, announced that he will be stepping down at the end of his term, in June.  By First National Financial LP. 

2020 Housing Market Projections

I attended a great program presented by NAS Nationwide Appraisal Serivces, Canada’s largest AMS Appraisal Management Company that acts as a third party intermediary linking mortgage originators and lenders for fulfillment of mortgage financing appraisal conditions. 

Great speakers providing some good insight into what is being projected and predicted in the Residential Housing Market for 2020 based on market statistics.  Thank you NAS!

 

 

Bank of Canada Holds Steady Despite Economic Slowdown

In a more dovish statement, the Bank of Canada maintained its target for the overnight rate at 1.75% for the tenth consecutive time. Today’s decision was widely expected as members of the Governing Council have signalled that the Bank still believes that the Canadian economy is resilient, despite the marked slowdown in growth in the fourth quarter of last year that has spilled into the early part of this year. The economy has underperformed the forecast in the October Monetary Policy Report (MPR). 

In today’s MPR, the Bank estimates growth of only 0.3% in Q4 of 2019 and 1.3%in the first quarter of 2020. Exports fell late last year, and business investment appears to have weakened after a strong Q3, reflecting a decline in business confidence. Job creation has slowed, and indicators of consumer confidence and spending have been much softer than expected. The one bright light has been residential investment, which was robust through most of 2019, moderating to a still-solid pace in the fourth quarter only because of a dearth of newly listed properties for sale. 

The central bank’s press release stated that “Some of the slowdown in growth in late 2019 was related to temporary factors that include strikes, poor weather, and inventory adjustments. The weaker data could also signal that global economic conditions have been affecting Canada’s economy to a greater extent than was predicted. Moreover, during the past year, Canadians have been saving a larger share of their incomes, which could signal increased consumer caution which could dampen consumer spending but help to alleviate financial vulnerabilities at the same time.

The January MPR states that over the projection horizon (2020 and 2021), “business investment and exports are anticipated to improve as oil transportation capacity expands, and the impact of trade policy headwinds on global growth diminishes. Household spending is projected to strengthen, driven by solid growth of both the population and household disposable income.” Growth is expected to be 1.6% in 2019 and 2020 and is anticipated to strengthen to 2.0% in 2021.

Inflation has remained at roughly the Bank’s target of 2%, and is expected to continue at that pace.

Also from the MPR: “The level of housing activity remains solid across most of Canada, although recent indicators suggest that residential investment growth has slowed from its previously strong pace. Demand remains robust in Quebec, where the labour market has been strong. In Ontario and British Columbia, population growth is boosting housing demand. In contrast, Alberta’s housing market continues to adjust to challenges in the oil and gas sector. Nationally, house prices have continued to increase and should strengthen slightly in the near term, consistent with the responses to the Bank’s recent Canadian Survey of Consumer Expectations.”

Bottom Line: The Canadian dollar sold off on the release of this statement and I believe there is a downside risk to the Bank of Canada forecast. Today’s release is a more dovish statement than last month, showing less confidence in the outlook. The Governing Council did express concern that the recent weakness in growth could be more persistent than their current forecast, saying that “the Bank will be paying particular attention to developments in consumer spending, the housing market, and business investment.” They also raised estimates of slack in the economy and dropped language about the current rate being appropriate.

According to Bloomberg News, today’s Governing Council comments “are a departure from recent communications in which officials sought to accentuate the positives of an economy that had been running near capacity and was deemed resilient in the face of global uncertainty. While Wednesday’s decision still leaves the Bank of Canada with the highest policy rate among major advanced economies, markets may interpret the statement as an attempt to, at the very least, open the door for a future move.”

Economic growth in Canada will be modest but solid in 2020

Despite the slowdown of the economy at the end of 2019, we believe the Canadian economy will continue to grow in 2020. The good performance of the job market will support consumption and the housing market.

Canadian exports should also continue to perform well because the U.S. economy is enjoying solid growth and the fortunes of the world economy are improving. We also expect stronger government spending to support growth in 2020.

What does it mean for entrepreneurs?

1. The housing market will perform better in 2020, supporting the construction industry. Lumber manufacturers and building supplies wholesalers should benefit as well.
2. As the global economy improves, demand for Canadian products and services will be solid in 2020.
3. Labour shortages will remain an important challenge in many regions.

By BDC Business Development Bank of Canada.

Debt goes for a hike

As Canada rolled into the final quarter of 2019 debt levels went for a hike.  The latest figures from Statistics Canada put the level of household debt to disposable income at 176%.  Up from 175.4% reported in the previous quarter

For every dollar left after taxes and expenses Canadians owed $1.76 in debt.  It was the first increase in a year and represents an annualized increase of 1.2%. 

Mortgage borrowing was a big part of the increase.  Bank of Canada figures show mortgage debt at institutional lenders hit a new high of $1.62 trillion in November, up 0.37% from October and 4.6% higher on year-over-year basis.  Low interest rates and good employment numbers appear to be bringing Canadians back into the housing market.

Growing debt also means Canadians are using more of their money to service it.  In the third quarter of 2019 the national debt service ratio hit an all-time high of 14.96%.  That has triggered more concerns about bankruptcies and insolvencies.  The Office of the Superintendent of Bankruptcies says nearly 136,000 Canadians had become insolvent by the end of November, a 9% annual increase.  By First National Financial. 

Industry & Market Highlights 

Average home price in London, ON rises in November

Home prices in London, ON have risen in November, according to data from the London St. Thomas Association of Realtors (LSTAR).

LSTAR revealed that the average home price in London was $416,116 in November, up 10.6% compared to November 2018. Broken down by area, the average home price in London East was $357,796, up 18.6% from last November. In London South (which includes data from the west side of the city), the average home sales price was $424,900, up 12.2% compared to the previous year, while London North saw an increase of 1.9% over last November, with an average home sales price of $493,896.

“We had another solid month, demonstrating the robust marketplace all across the region,” said Earl Taylor, president of LSTAR. “There have been 9,658 home resales year to date, which is up 3.2% compared to the same period in 2018, and we’re on course to surpass last year’s total sales.”

The sales-to-new listings ratio in LSTAR’s jurisdiction was 90.7%, which the Canadian Real Estate Association (CREA) says favours sellers. A ratio between 40% and 60% is generally consistent with a balanced market. A ratio below 40% tends to favour buyers, while a ratio higher than 60% indicates marketplace conditions favouring sellers, according to CREA.

“Several regions saw sales-to-new listings ratios above 100%, including London East (105.6%) and Strathroy (107.1%),” said Taylor. “We’re still experiencing low inventory levels, which also continues to impact the average home sales price in all regions.”  By Duffie Osental. 

Buying or selling? Here’s what you need to know about new real estate rules

The Ontario government recently announced plans to change the rules in the real estate industry in Ontario. The proposed changes are fairly broad, and will impact several areas, some in particular will impact you directly as the consumer.

The Real Estate Council of Ontario (RECO), is mandated by the Government of Ontario to protect consumers who buy and sell their properties through brokerages registered to trade in Ontario. RECO is here to assist you with what these proposed changes mean to you as a consumer.

If you received this from your real estate salesperson, then that’s a good sign, because you are already talking to a real estate professional who has your interests as a consumer at heart.

What are the most important changes?

There are many important reforms in the legislation that will improve protection for Ontario’s buyers and sellers. Here are a few highlights:

• Adding clarity for buyers and sellers so that they know whether they are represented by a brokerage, or if they are self represented;
• Requiring new disclosures to buyers and sellers to support informed decisions;
• Additional regulatory powers that will give RECO more tools to get the worst offenders in the industry out of the business; and
• Making it easier for RECO to levy fines against real estate salespeople for certain violations of the legislation.

What won’t change is RECO’s mandate. We remain committed to protecting Ontario consumers, and the integrity of the marketplace.

I’m in the process of buying or selling, how does this impact me?

The current laws already offer robust protection for you as a consumer, and thousands of sales occur every month in Ontario with no problem at all. It is important that you understand exactly what duties your brokerage owes you, and what your responsibilities are too, under the arrangement that has been established.

Why did the government introduce this legislation?

It is usual that the Government reviews its laws on a regular basis to ensure that they remain up to date and relevant. The real estate industry has evolved in many ways since 2006 when the last significant changes were made, so it was time to revisit the laws. RECO is pleased that there are many proposed changes that enhance consumer protection, and we recognize that other changes will strengthen the business environment in the real estate industry, and also cut some of the red tape.

What happens next, and when do the new rules come into effect?

It can take a while for the rules and laws to change through the legislative process, so the simple answer is that there are several steps that need to take place before the rules actually change. It is also possible that the proposed rules may be amended through the process. The new rules could come into effect as early as 2021.

 

How can I stay informed?

RECO’s website is a great resource for staying up-to-date on developments with the Trust in Real Estate Services Act, 2019.

Share this link with your clients or download the PDF here.

National housing market now characterized by more balanced conditions

Despite a modest degree of vulnerability remaining, the Canadian residential market is now exhibiting “much narrow imbalances,” according to the federal housing agency.

A new quarterly report by Canada Mortgage and Housing Corp. stated that the average housing price nationwide ticked down by 0.6% annually during Q2 2019. Meanwhile, the population of young adults expanded by 1.9% during the same time frame, boosting the number of potential first-time home buyers.

For the third consecutive quarter, CMHC cited “moderate” risk for the national market. This was after around two and a half years of “high” risk ratings, The Canadian Press reported.

Breaking down by markets, Toronto has been moved from “high” to “moderate” risk, with prices declining by 0.8% and inflation-adjusted disposable income gaining 0.5% during the second quarter.

Hamilton was similarly moved from “high” to “moderate” vulnerability, while Vancouver, Calgary, Edmonton, Saskatoon, Regina, and Winnipeg all retained their “moderate” risk ratings.

“Low” risk markets include Ottawa, Montreal, Quebec, Moncton, Halifax, and St. John’s, CMHC noted.

Last week, the Crown corporation argued that stricter mortgage regulations are a major component of Canadian housing’s current stability. Low default rates and slower residential mortgage growth will also alleviate the worst effects of market weakness.

More importantly, these trends give credence to the Bank of Canada’s latest decision to hold its interest rates. Keeping rates flat would prevent a “resurgence” of credit, which has been previously cited by the central bank as a significant economic risk.  By Ephraim Vecina.

Changes Are Coming to Tarion Warranty Corporation. How will they affect Ontario investors?

When it was released to the public in October, the Office of the Auditor General of Ontario’s Special Audit of the Tarion Warranty Corporation surprised few when it called out the non-profit for its ongoing failure in assisting homeowners in their warranty disputes with the province’s homebuilders.

The audit called Tarion to task over several areas of concern, from the corporation’s close relationship with the Ontario Home Builders Association to its unnecessarily tight schedule of deadlines, which have led to the denial of thousands of homeowner requests for help. Among some of the more damning information contained in the report, the Auditor General found that builders failed to fix defects under warranty in 65% of cases between 2014 and 2018, and that the compensation of Tarion’s senior management team depended on reducing operating costs – like those related to running Tarion’s call center.

The audit culminated in 32 recommended changes for Tarion, including:

• Discontinuing Tarion’s monetary sponsorship to the Ontario Home Builders Association
• Providing homebuyers more direct information on the importance of Pre-Delivery Inspections
• Conducting random audits of builders to ensure compliance
• Redefining “finished house” so a homeowner’s one-year warranty period begins only once the home meets this new definition
• Removing the two 30-day deadlines imposed on homeowners to file a complaint against their homebuilders
• Factoring builders’ poor warranty performances into licensing decisions
• Multiple protections for new-build homebuyers who have purchased units in projects that may be delayed or cancelled

Tarion’s response has been predictably agreeable, with the corporation pledging to work toward implementing the audit’s recommendations.

“[W]e are taking several positive steps in the journey to build a better warranty program for our stakeholders,” Tarion said in its response to the report. “This includes improvements to our dispute resolution tools, additional disclosure on the Ontario Builder Directory and implementing targeted pre-possession inspections to improve the quality of new homes across the province.”

But few see these recommendations having much of an effect on buyers of new product, largely because of Tarion’s laughable track record thus far in helping homeowners and the conflict of interest inherent in having homebuilders call most of the shots for an organization that is meant to hold them accountable.

“I personally think Tarion is one of the most broken systems for consumer protection that there ever has been. I think it’s an embarrassment to Ontario,” says Simeon Papailias of Royal LePage Signature Realty, who read the report shortly after its release. “The findings are right in line with everybody’s experience. Consumers absolutely are disgusted by Tarion.”

“I never had any faith in Tarion whatsoever, and I maybe have marginally more faith now that some changes have been made,” says David Fleming of Bosley Real Estate. “There are just not enough resources, and not enough interest among Tarion and the builders they represent, to go ahead and actually remedy the issues.”

There are also concerns that any costs associated with Tarion reforms incurred by Ontario builders could eventually be passed on to homeowners.

“If these changes are going to make things more expensive, they are going to pass on one hundred percent of the cost to the consumers,” Fleming says. “What’s the alternative? They’re going to make less money? Never. Unless people stop buying.”

Papailias says that new-build investors hoping to avoid a dispiriting encounter with Tarion need to take their pre-delivery inspections more seriously. “People don’t even show up at their pre-delivery inspections because they don’t think they’re relevant, and it’s the most relevant part of your Tarion warranty,” he says.

Cynicism will rain down on Tarion until meaningful reforms are enacted. But Papailias feels there are better days ahead for investors forced to playing the new construction game with Tarion as a teammate.

“They can no longer hide when everything has been outed.”  By  Clayton Jarvis.

Consumer debt blues brighten slightly

Interest rates are stable and look poised to fall.  Inflation is in check.  The unemployment rate is at historic lows.  We are told wage growth is strong, and households appear to be reducing their debt-load.

Still, many Canadians are worried about making ends meet.

The latest quarterly survey by insolvency trustee MNP suggests 54% of Canadians have growing concerns about their ability to repay their debts.  The survey also suggests Canadians have a shrinking amount of money left at the end of the month.  Once all the bills are paid the average Canadian has $557.00 to spare.  That is down more than $140.00 from the last survey in June.  Nearly half of the respondents say they have less than $200.00 left at the end of the month.  Of that group, almost one-third say they do not make enough money to cover all of their obligations.

The MNP survey – which tries to track people’s attitudes about their finances – also indicates Canadians are little more upbeat about their situations.  Nearly a third say their finances are better than they were a year ago, up by three points.  And a similar number say things are better than they were five years ago, a two point increase.

For a growing portion of respondents the future looks even brighter.  Nearly 40% believe their debt situation will improve over the next year, up by three points.  Half believe things will get better over the next five years, also a three point jump.  By First National Financial.

5 things to know about Ontario’s new real estate act

The long-awaited changes to the real estate agent and brokerage community in Ontario just had its initial release, mostly to positive reviews from the industry. The draft bill to change the Real Estate and Business Brokers Act, 2002 has not yet been approved and contemplates further changes. The new act will be called the Trust in Real Estate Services Act, 2002. Here are the main points you need to know.

1. Real estate agents will be able to incorporate.

The real estate industry has been requesting this for years, so that real estate professionals could enjoy the same tax advantages of other professional groups such as doctors, lawyers and accountants. Incorporation should also provide extra protection from liability. Incorporation is not for everyone and once the rules are clarified, agents must discuss this with their own accountants to make sure that this is right for them. Still, great news.

2. No more customers, you are either a client or you are self-represented.

There has been a lot of confusion over the years in trying to explain to a member of the public as to whether they should become a client or customer of a real estate brokerage and the differences between the two. While there currently is a duty to be fair to customers, there was an extra level of care owed to clients. An agent can give advice to a client, not a customer. This is easier said than done. Under the proposed new rules, you are either a client of the brokerage, or you represent yourself. Makes it much simpler. Remember the old adage, “when you represent yourself, you have a fool for a client.” Applies in just about everything you do.

3. Multiple representation will still be permitted.

This is also great news for the industry. Real estate brokerages will still be able to represent both the buyer and the seller in the same deal. It is not clear whether the same agent will be permitted to act for both the buyer and the seller. This will also have to be reviewed more carefully when further clarification is provided.

4. Sellers may be able to disclose the highest price to a competing buyer.

It appears that in a bidding war, a seller may obtain the option to disclose to one of the other buyers the price that one of the buyers is willing to pay. This is currently not permitted today. Again, the actual language will have to be reviewed to determine the circumstances when this may occur.

5. Penalties are increasing if you break the rules.

It is proposed that fines to real estate agents and brokerages be increased to $50,000 for any agent to $100,000 for the brokerages if you violate the rules, including the REBBA 2002 Code of Ethics. This is just part of the new protections to give the public more assurance that real estate agents and brokerages are held to a higher professional standard.

By Mark Weisleder, REMOnline.com

Toronto unveils $23.4 billion housing plan

The City of Toronto has released a comprehensive housing blueprint to assist more than 341,000 households over the next decade.

The HousingTO 2020-2030 Action Plan provides 13 strategic actions that looks to address the “full continuum” of housing – including homelessness, social housing, rental housing, long-term care, and home ownership. Some of the highlights include a revised housing charter and the creation of a multi-sector land bank to support the approval of 40,000 new rental and supportive homes.

Implementation of the full plan over 10 years is estimated to cost governments $23.4 billion, with the city’s commitment through current and future investments being $8.5 billion.

Mayor John Torry said that he “will be working hard with the other orders of government to ensure the entire HousingTO Action Plan is fully funded”

“This has to be a priority — we have to come together to support households who are struggling to pay the rent and keep, or put a roof over their heads,” said Torry. “Ensuring that residents in our city have access to housing will benefit our entire city. It gives people the opportunity to meet their full potential and to participate in our city’s success. Together we can make a difference and make Toronto a place that anyone who wants to, can call home.”  By Duffie Osental. 

Economic Highlights

Housing and debt worries weigh on BoC

The Canadian economy continues to stubbornly support the Bank of Canada’s interest rate policy.  Market watchers are pretty much unanimous in their projections that the central bank will stay on the sidelines, again, when it makes its rate announcement later this week.

The latest numbers from Statistics Canada show gross domestic product grew by 1.3% in the third quarter.  That is a slow down, but it is a long way from anything that would trigger BoC intervention.  Consumer spending and housing are seen as the main drivers of that growth.

Housing has recovered nicely from its sluggish performance earlier this year and it would seem that the market has made a soft landing.   But the Bank continues to worry that lowering interest rates could spark another round of debt-fueled buying.  In the Bank’s opinion, high household debt remains a key vulnerability for the Canadian economy.

Of course an interest rate cut would weaken the relatively strong Canadian dollar which is hampering the export sector, but the Bank has said it would like to see other methods used to encourage exports and business investment.  Even lower interest rates and a weaker Loonie might not be enough to push through the international economic headwinds created by the current spate of tariff and trade wars that have slowed global growth.

Now the forecasters are looking as far ahead as the second quarter of 2020 before they see any interest rate activity.  By then we should being seeing the effects of the U.S. presidential election campaign. By First National Financial.

Rate cut pressure eases for BoC

The Bank of Canada still has a clear path to an interest rate cut, but now there is less pressure to go down that route.

The latest inflation numbers from Statistics Canada showed a 0.3% increase from September to October, with the annual average inflation rate holding steady at 1.9%.  Core inflation edged up slightly to 2.1% in October from 2.0% in September.  Core inflation, which is what the Bank of Canada watches, strips-out the cost of volatile items like food and fuel.  Mortgage interest costs and car insurance were two of the big drivers of inflation last month.

The other key influencer of Canadian interest rates also appears to have stabilized.  The U.S. Federal Reserve says it does not expect to be dropping its benchmark rate again this year.

At the end of last month the Fed trimmed another quarter point off its policy rate dropping it into the range of 1.5% to 1.75%.  The minutes of the Fed meetings – that were released at the same time – make it clear the Federal Open Market Committee (FOMC), which sets the rate, has little taste for further cuts.  The U.S. central bank has dropped its rate three times in 2019.

The current president of the United States has been pushing for negative interest rates, a la Europe, but there is little evidence the tactic is getting the desired results there. By First National Financial. 

Huge Decline in Jobs in November As Jobless Rate Surges

One month does not a trend make. Statistics Canada announced this morning that the country lost 71,200 jobs in November, the worst performance in a decade. What’s more, the details of the jobs report are no better than the headline. Full-time employment was down 38.4k, and the private sector shed 50.2k. The jobless rate also rose sharply, up four ticks (the most significant monthly jump since the recession), to 5.9%. Hours worked fell 0.3%, and remain an area of persistent disappointment—they’re now up just 0.25% y/y, much more muted than the 1.6% annual job gain.

The one area of strength was wages, with growth accelerating to match a cycle high at 4.5% y/y. But wages tend to lag the labour market cycle, so if this weakness is the start of something bigger, wages gains are likely to slow.

The monthly moves were soft, no matter how you slice them. Both full-time (-38.4k) and part-time employment (-32.8k) were down. Similarly, private sector employment (-50.2k) led the way, but self-employment (-18.7k) and the public sector (-2.3k) also saw net losses.

Until last month, we saw a long string of robust job reports in what is usually a very volatile data series, so a correction is not surprising. But this report appears to be more than a statistical quirk and belies the Bank of Canada’s statements this week that the Canadian economy remains resilient. Employment is still up 26k per month in 2019 to date consistent with a 1.6% y/y gain, and most of that comes from full-time work. And some of the drop in November reflected a decline in public administration jobs retracing October’s gain that might have been related to the federal election. Nevertheless, the 0.4 percentage point uptick in the jobless rate is the largest since the financial crisis in early 2009, and manufacturing jobs were down more than 50k over the past two months.

By industry, job declines were widespread in the month, with only 5 of 16 major sectors posting improvement. Net losses were shared across both the goods and service sectors. Manufacturing (-27.5k) shed jobs for a second month, and notable declines were seen in public administration (-24.9k, likely a reflection of post-election adjustment) and accommodation and food services (-11k).

By region, Ontario and PEI were the only provinces to manage job growth last month, with all others deeply in the red. Quebec stands out, shedding 45.1k net positions in a second monthly employment decline and pushing the unemployment up to 5.6% (from 5.0%; the largest monthly increase in nearly eight years). Quebec’s jobless rate is now equivalent to that in Ontario. Things were not much better out west: Alberta and B.C. both lost 18.2k net positions. In the case of the former, this was enough to send the unemployment rate up half a point, to 7.2%. Ontario bucked the trend, adding 15.4k net positions, just shy of erasing the prior month’s drop. Still, the unemployment rate in the province rose to 5.3% (from 5.0%), as more people joined the labour force. (See the table below.)

Job growth slowed in the second half of this year. Over that period, the average monthly job gain has been a paltry 5.9k compared to an average monthly gain of 24.4k over the past year. For private sector employment, the equivalent figure flipped into negative territory (-4.3k) for the first time in more than a year.

Bottom Line: Today’s report means that the Bank of Canada will be keeping an even more watchful eye on the jobs report. The year-on-year pace of net hiring has decelerated for three straight months now, driven in large part by a slowing pace of private-sector hiring. It seems a safe bet that even if we see some recovery in the coming months, the substantial gains of recent years are unlikely to be repeated.

The Bank of Canada has been emphasizing Canada’s economic resilience in its recent communications. One month of soft jobs data will hardly break that narrative, but coming after a modest October, it is not hard to imagine a hair more worry about the durability of growth. The bigger question is whether this weakness persists, and more importantly if it feeds into consumer spending behaviour and housing activity, the Bank’s key bellwethers.

We continue to believe that the BoC will cut rates in 2020, owing mainly to Canada’s vulnerability to trade uncertainty. The loonie sold off sharply on the employment news, particularly so because of the stronger-than-expected labour market report released this morning in the US.

Mortgage Interest Rates

Prime lending rate is 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval is at 5.19%.  Fixed rates are holding steady.  Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages somewhat attractive, but still not a significant enough spread between the fixed and variable to justify the risk for most.

There is never a better time than now for a free mortgage check-up.  It makes sense to revisit your mortgage and ensure it still meets your needs and performs optimally.  Perhaps you’ve been thinking about refinancing to consolidate debt, purchasing a rental or vacation property, or simply want to know you have the best deal?  Whatever your needs, we can evaluate your situation and help you determine what’s the right and best mortgage for you.

Industry & Market Highlights 

Mortgage business on the move

In an effort to fill in some of the gaps in the country’s housing market data Canada Mortgage and Housing Corporation has launched a new Residential Mortgage Industry report.  The agency says the report is designed to support “evidence-based policy and informed decision making within the housing finance sector.”

Not surprisingly the report confirms that Canada’s big banks have the vast majority of the country’s residential mortgage business with a 75% share.  The average mortgage is a little less than $221,000 and their delinquency rate is just 0.24%.

Credit Unions hold 14% of the market, with an average mortgage value of $151,000 and a delinquency rate of 0.17%.  Mortgage finance companies have 6% of the market, an average mortgage of $258,000 and a delinquency rate of 0.25%.

So called “alternative lenders” – mortgage investment companies (MIC) and private lenders – have a market share of just 1.0%, an average mortgage of $195,000 and a delinquency rate of 1.93%.

While the alternative lenders have the smallest slice of the pie many market watchers are concerned that their share is growing while overall mortgage origination have declined.

In 2018 the growth of mortgage originations hit its lowest level in 25 years.  At the same time mortgage investment companies (MICs) increased their share of originations, more than doubling their share of the mortgage stock.

Overall, 200 to 300 active MICs and private lenders held an estimated $13 billion to $14 billion of mortgages outstanding, up from $12 billion estimated for 2017 and $10 billion in 2016.

Tougher mortgage stress testing is seen as a key reason home buyers are moving to alternative lenders where the terms are easier, but more expensive.  CMHC says a culture shift from owning to renting helps explain the drop in mortgage originations.  Of course, that shift is likely a response to the tougher mortgage qualifying rules as well.  

By First National Financial.

Bank of Canada Holds Policy Rate Steady Amid Global Uncertainty

It is rare for the Bank of Canada and the US Federal Reserve to announce rate decisions on the same day, but today’s announcements highlight the stark differences in policy in the two countries. The Bank this morning announced they would maintain their target for the overnight rate at 1.75% for the eighth straight meeting. The Fed is widely expected to cut its target for the fed funds rate by another 25 basis points, taking it below the key rate in Canada for the first time since 2016. More than 30 central banks have cut interest rates in the past year and the Bank of Canada in today’s Policy Statement highlighted the weakening in the global economic outlook since the release of its July Monetary Policy Report (MPR).

In today’s MPR, the Bank revised down its forecast for global economic growth this year to below 3.0%, reflecting a downward revision in growth in the United States to 2.3% (from 2.5%), the Euro area (to 1.1% from 1.2%), oil-importing emerging market economies and the rest of the world. China’s growth pace remains at a 30-year low of 6.1%.

Trade conflicts and uncertainty are weakening the world economy to its slowest pace since the 2007-09 economic and financial crisis. The slowdown has been most pronounced in business investment and the manufacturing sector and has coincided with a contraction in global trade (Chart 1). Despite the manufacturing slowdown, unemployment rates continue to be near historic lows in many advanced economies, as growth in employment in service sectors has remained resilient.

Growth is projected to strengthen modestly to around 3.25% by 2021, with a pickup in some emerging-market economies (EMEs) more than offsetting slower growth in the United States and China.

Canada has not been immune to these developments. Commodity prices have fallen amid concerns about global demand. Despite this, the Canada-US exchange rate is still near its July level, and the Canadian dollar has strengthened against other currencies.

Growth in Canada is expected to slow in the second half of this year to a rate below its potential. This reflects the uncertainty associated with trade conflicts, the continuing adjustment in the energy sector, and the unwinding of temporary factors that boosted growth in the second quarter. Business investment and exports are likely to contract before expanding again in 2020 and 2021. At the same time, government spending and lower borrowing rates are supporting domestic demand, and activity in the services sector remains robust. Employment is showing continuing strength and wage growth is picking up, although with some variation among regions. Consumer spending has been choppy but will be supported by solid income growth. Meanwhile, housing activity is picking up in most markets. The Bank continues to monitor the evolution of financial vulnerabilities in light of lower mortgage rates and past changes to housing market policies.

Canadian Economy Boosted By Housing

The Canadian economy grew at a moderate pace over the past year, supported by a healthy labour market and the recent turnaround in housing. However, global trade conflicts and related uncertainty dampened business investment and export activities, and investment in the energy sector continued to decline. The impact on growth of both global headwinds and energy transportation constraints is expected to diminish, and the pace of economic expansion should gradually pick up in 2020 and 2021.

In 2020 and 2021, Canada’s economy is anticipated to grow near potential. Consumer spending is projected to increase at a steady pace, and housing activity to continue its ongoing recovery. Overall, investment and exports are anticipated to grow moderately. In the energy sector, investment is forecast to stabilize, and oil exports should improve as pipeline and rail capacity gradually expands.

In today’s MPR, the Bank states that housing resales have been catching up to underlying demand (see chart 7 from the MPR). Housing markets generally reflect regional economic conditions. Housing starts and resales have been particularly robust in Quebec and Ontario, where labour markets have been strong. These provinces will likely continue to be the main drivers of the growth in residential investment. In Alberta, where the oil industry is expected to stabilize, modest improvements in housing are expected. In British Columbia, residential investment has recovered in recent months and

should remain near current levels, reflecting the creation of new households.

Bottom Line

The dovish tone of today’s policy statement suggests that the Bank of Canada has become more cautious in its holding pattern amid a weakening global economy. The central bank “is mindful that the resilience of Canada’s economy will be increasingly tested as trade conflicts and uncertainty persist,” policymakers led by Governor Stephen Poloz said in the statement. “In considering the appropriate path for monetary policy, the Bank will be monitoring the extent to which the global slowdown spreads beyond manufacturing and investment.”

The statement and the fresh batch of more pessimistic growth forecasts will raise questions about the central bank’s commitment to a neutral stance on rates, particularly in the face of global easing in many other countries that has made the Bank of Canada an outlier. If the Federal Reserve lowers its interest rates later today, as expected, the Bank of Canada would have the highest policy rate in the industrialized world.

It may well be that the Bank of Canada cuts rates early next year. Mitigating this prospect is that the Bank was more bullish on consumption and housing–fueled by the robust labour market. Another source of future growth is additional fiscal stimulus from Prime Minister Justin Trudeau’s newly elected Liberal government, which has promised to implement new spending and tax cuts next year. For now, the Bank is maintaining a neutral stance.  

By Dr. Sherry Cooper.  Chief Economist, Dominion Lending Centres

Canadian Real Estate Reality Check

From a housing perspective, it was an interesting and enlightening 40 days leading up to Canada’s 2019 federal election. Justin Trudeau’s new mandate was far from a landslide win, resulting in a Liberal minority government at the helm. This means Liberals will need the support of the other parties to pass legislation. Could this prospect of collaboration be a saving grace for Canada’s housing?

One thing Canadians have agreed on is that housing affordability and the cost of living are a top priority. The question about which party would effectively address those concerns was largely up in the air, and it still is.

The new minority government could be just what Canada needs to pull it out of this housing quagmire, which only seems to have gotten muddier since the Liberals took power in 2015. The last four years have seen skyrocketing housing prices and rents rising in lockstep, while housing supply dwindles.

This story of unsustainable growth in parts of Ontario is offset by the turmoil in Western Canada, with Liberal policies taking the brunt of the blame for what’s happening in British Columbia, Alberta and Saskatchewan. Generally speaking, the Liberals haven’t had positive impacts on real estate – yet.

The solution to Canada’s housing woes, at least for the next four-year term (barring any political shake-ups, which could cut that short) might be found through collaboration.

The Conservatives and New Democrats laid out some seemingly solid plans to address the housing crisis in their 40-day campaign period, tabling changes to the mortgage stress test, a return of 30-year amortizations for first-time homebuyers (even though it’s likely that both of these policies would have only pushed prices up in the long run) and addressing housing supply. Meanwhile, the Liberals are largely planning to stay the course, much to the chagrin of many Canadians who have been hoping, if not praying, for real estate relief.

With that being said, Team Trudeau has made some moves on the housing front over the last four years.

The National Housing Strategy is one of the wins, established in 2017 to help reduce homelessness and increase the availability and quality of affordable housing, at a cost of $50 billion over 10 years. Trudeau also increased the amount first-time homebuyers can withdraw from their registered retirement savings plan, from $25,000 to $35,000. And let’s not forget about the First-Time Home Buyer Incentive, an interest-free government loan covering up to 10 per cent of a home’s price, to lower the mortgage payments.

On the questionable side of the Liberals’ 2019 campaign was their promise to boost the First-Time Home Buyer Incentive amount in Toronto and Vancouver, to offset the sky-high prices in these markets. But when the average home hovers around $800,000 and $1 million respectively, the First-Time Home Buyer Incentive isn’t much of an incentive. The Liberals have also tabled a one-per-cent speculation tax on vacant homes owned by foreigners, which could limit price growth. But in reality, this policy won’t have much impact on the average Canadian.

What the Liberals have failed to address entirely is the prohibitive mortgage stress test, which was implemented to put the brakes on Canada’s runaway housing markets. While it did help rein in unprecedented price growth in Toronto and Vancouver, the policy has come under scrutiny for being outdated and ultimately, a barrier to home ownership. I am 100 per cent supportive of responsible debt levels and policies to ensure that goal, but even with the recent modifications, the mortgage stress test is more hindrance than help.

Another gap in the Liberals’ platform is the issue of housing supply, which is at the crux of our affordability crisis. Between the lack of rental housing and supply of affordable housing and less incentive for developers to build new communities, Canada is experiencing a serious housing shortage. This is particularly true in Vancouver and Toronto, where the average cost of living continues to tick upward, and residents are left scrambling for affordable alternatives.

It seems to me that Trudeau needs a reality check, which may come from the Conservatives, NDP and Bloc Québécois. By taking the best proposals put forth by each party, perhaps a patchwork solution will be found. But the collaboration can’t stop at the federal level. Trudeau must work closely with provincial and municipal governments, as well as the private sector, to create more housing supply.

Many Canadians, especially millennials, new immigrants and those employed in the so-called “gig economy” feel home ownership is becoming less tangible by the day. While politicians of all stripes acknowledge the mounting urgency of affordable housing, few are offering any timely or compelling solutions.

Real estate is still one of the safest and most reliable financial investments for Canadians. As real estate professionals, it’s our duty to help prospective homebuyers navigate this tricky landscape. Outside of creating more supply and affordable housing, I urge governments to refrain from meddling with the private real estate market. History shows that whenever they do, the effects are mostly detrimental.

I urge Canada’s new government to work together to develop a national housing strategy that addresses all issues relating to affordability. The health of Canada’s housing is at stake.  By Christopher Alexander

Mortgage-free or diversity?

Canadians put a high priority on paying off their mortgage debt – sometimes maybe a little too high.

Paying off debt is always a good move.  Wanting to be mortgage free is a laudable goal.  Making it your only goal may not be as sound.

Traditionally paying off your mortgage as quickly as possible has been seen as one of the best routes to financial success.  Interest rates used to be higher.  Some will remember that nasty period in the ‘80s and ‘90s when they were in double digits.  Even the 5% and 6% rates in place just before the Great Recession make today’s rates seem cheap.  So it can make more sense to take your focus off of your home and mortgage and view them as part of a more diversified investment strategy.

Over the past 10 years stock markets have tended to deliver rates of return that are markedly higher than mortgage interest rates.  By diverting some money away from your mortgage you could invest through RSPs or TFSAs.  It has been shown that people who start investing when they are young end up wealthier later in life.

Of course markets do fluctuate and some people prefer the stability of the “guaranteed return” that comes with paying down a mortgage.  It is a form of enforced saving.  There is also a sense of security that comes with mortgage free home ownership in the case of job loss or a sudden drop in income.

There is also protection in diversification.  Because you have expenses that go beyond your mortgage, having a collection of smaller assets can be useful.  If money gets tight you could sell a lesser investment in order to pay other bills.

While it is never a bad plan to pay down your mortgage faster, it is always a good plan to diversify and spread around your assets and your risks.  As the old expression says, “Don’t put all your eggs in one basket.”  By First National Financial.

Toronto real estate ranked second-highest bubble risk in the world 

The real estate bubble risk in Toronto is the second-highest in the world, according to data from the UBS Global Real Estate Bubble Index 2019. Canada’s largest city has a risk of 1.86, which is second only to Munich, which has a risk of 2.01. Amsterdam and Hong Kong tie for third place with a risk of 1.84.

Vancouver still poses a threat with a risk of 1.61, although that is a modest drop from its assessment of 1.92 in 2018. Toronto also experienced a slight drop from its 2018 risk of 1.95, and even more from its 2017 bubble risk of 2.12.

The UBS Global Real Estate Bubble Index gauges the risk of a property bubble—defined here as the substantial and sustained mispricing of an asset—on the basis of patterns of property market excesses. Signs typically include a “decoupling” of prices from local incomes and rents and imbalances in the real economy, such as excessive lending and construction activity.

“Low affordability already poses one of the biggest risks to property values in urban centers. If employees cannot afford an apartment with reasonable access to the local job market, the attractiveness and growth prospects of the city in question drop,” write Head of Swiss & Global Real Estate Claudio Saputelli and Head of Swiss Real Estate Investments Matthias Holzhey in the report.

These drops are often followed by attempts to curb price appreciation through regulatory measures, what have served to correct the market in the most overheated cities in recent years. In fact, real prices in the top four ranking cities in the 2016 UBS Global Real Estate Bubble Risk Index have fallen on average by 10%.

Between 2000 and 2018 real home prices in the Canadian cities in the UBS Index (Vancouver and Toronto) rose consistently by more than 5% each year. But, the report reads, over the last four quarters, price growth has stalled.

“The introduction of taxes on foreign buyers, vacancy fees and stricter rent controls seem to have taken effect. While the average price level in Toronto has remained broadly unchanged from last year, prices in Vancouver are down by 7%,” the report reads. “Lower mortgage rates are supportive, but cannot outweigh lower economic growth.”

In other words, while homes are still overvalued, the housing frenzy seems to have come to a halt—for now.

In Toronto, home prices almost tripled between 2000 and 2017, and although measures have been put in place to address affordability, a major price correction seems unlikely in the near future due to factors such as a weakening Canadian dollar and low housing supply. In Vancouver, the growth rates have reversed from higher than 10% to -7% in just two quarters, and the market remains vulnerable to the slightest shift in demand. Regional housing supply in Vancouver is increasing, although prices are 75% higher than they were 10 years ago.

In both cities, the report states that favourable financing conditions are keeping home prices high, although affordability remains a key risk.

There are, however, several differences between today’s bubbles and those that destroyed the American housing market more than a decade ago, dragging parts of the world down with it. Currently, lending growth is on par with GDP growth, which is in contrast to the run-up to the Great Financial Crisis, when outstanding mortgage volumes increased up to 2.5% faster than GDP, according to the UBS report.

Toronto and Vancouver are the only cities in North America that have a high risk of having real estate bubbles; with the exception of Hong Kong, all other high-risk cities are in the Eurozone.  By by Kimberly Greene. 

Ownership registry to help stamp out money laundering in housing  

The creation of a beneficial ownership registry is one of the most effective ways to fight money laundering in Canadian real estate, according to Ontario Real Estate Association CEO Tim Hudak.

In a recent contribution to the Toronto Sun, Hudak noted that such a public database would make it easier to determine a property’s ownership, thus ensuring much improved transparency and accountability.

“It would allow law enforcement, tax authorities, media and everyday citizens to search for properties of corrupt officials, their families or people they may know who are involved in money-laundering crimes, and better connect money from criminal acts overseas to property purchased in Canada,” Hudak wrote.

Said system would compel companies, trusts, and partnerships to disclose beneficial owners, most particularly controlling shareholders and partners.

Fortunately, the infrastructure to readily implement such a registry is already in place, the OREA chief assured.

“Teranet, the exclusive provider of Ontario’s online property search and registration, already operates one of the most advanced, secure and sophisticated land registration systems in the world. To add the Beneficial Ownership Registry to its current platform would be a smart move to further increase transparency in housing transactions.”

Hudak cited research by Transparency International Canada, which found that since 2008, more than $28.4 billion worth of homes in the GTA alone were bought by shell companies.

“The problem is we don’t know how much of this money comes from legitimate businesses and how much are anonymous front companies hiding laundered money,” he stressed. “What we do know is the dirty money coming into our housing market is competing against hard-working young families trying to buy homes — and that has to stop.”

Hudak’s comments mirrored those of former RCMP top investigator Henry Tso. Earlier this year, Tso warned that Canada’s justice system currently has significant loopholes – most notably, toothless prosecution, feeble sentencing, and insufficient resources for law enforcement – that promote the growth of fraud as a business.

“Currently, weak corporate transparency rules in Canada allow criminals to hide behind anonymous shell companies and wash large amounts of money through housing. That’s because shell companies are permitted to buy homes without disclosing the names of the beneficial owners — those who enjoy the benefits of ownership even though the title of the property is in someone else’s name,” Hudak stated.  By Ephraim Vecina

Economic Highlights

Canadian economy now feeling the heat of global pressures  

Latest Statistics Canada economic data indicated that Canada is not as impervious to global turmoil as initially thought.

“It also reinforces the Bank of Canada’s decision on Wednesday to keep rates unchanged for the eighth consecutive meeting, though policy makers signaled they are leaving the door open for a rate cut in December,” BNN Bloomberg reported.

In the wake of a flat GDP reading in July, the national economy’s 0.1% August growth was slower than expert predictions of 0.2%, “reinforcing the view the nation’s economy is showing signs of decelerating into the second half of the year,” the report added.

Despite the languid pace, fully 14 of 20 sectors grew during the month. Manufacturing accounted for the bulk of the August expansion, going up by 0.5%.

However, the 3.7% annual growth observed during the second quarter might deteriorate during Q3, StatsCan warned.

Fortunately, Canada can still expect greater consumer purchasing power in the near future, with the addition of almost 54,000 jobs in September. This far outstripped earlier expert predictions of just 7,500 new jobs, and accompanied a decline of the national unemployment rate to a near-record low of 5.5%.

CIBC World Markets Inc. chief economist Avery Shenfeld argued that on the whole, the Canadian economy can maintain its robustness against fluctuations in global trade currents through its healthy workforce growth.

“Canada’s labour market seems to have been vaccinated against the global economic flu going around,” Shenfeld wrote in a mid-October investor note, as quoted by Bloomberg. By Ephraim Vecina.

BoC has clearer path to a rate cut  

The Bank of Canada has remained – somewhat defiantly – on the sidelines yet again, but it is feeling the pressure to get back into the game and one obstacle has now been removed.

The bank held its benchmark rate at 1.75% for an eighth straight setting.  At the same time it has clearly signalled it may not be able to hold that line much longer.  In its quarterly Monetary Policy Report (MPR) the bank pointed directly at trade conflicts (such as the U.S. – China tariff war) as the key cause of a global economic slowdown.  Growth has fallen to its lowest level since the financial collapse in 2007.  Around the world more than 35 other central banks have already cut rates in an effort to keep growth from stopping altogether.

The U.S. Federal Reserve has made three cuts in the past several months.  That has boosted the strength of the Canadian dollar which makes the country’s exports more expensive on the world market.  Given that the central bank has been counting on more business investment and spending to pick up the economic slack as debt-burdened consumers switch from spending to saving and repaying their loans, headwinds for exports and business are unwelcome.

The BoC, however, is not concerned that a drop in interest rates will trigger a renewed frenzy of debt-funded consumer spending.  It is satisfied that the biggest component of household debt – mortgages – have been stabilized by the B-20 regulations.  And another big obstruction has been removed.  The federal election is over so the bank can operate without risking the appearance of political favouritism.  By First National Financial.

The Bank of Canada: What it is, what it does  

In an earlier commentary we took a look at what central banks are and what they do.  In this piece we focus on the Bank of Canada.

Like other central banks around the world the Bank of Canada has the broad responsibility for managing the economic and financial welfare of the country.

The Bank of Canada was founded in 1934 and it is relatively young by central bank standards.  In 1938 it became a Crown Corporation, which means it is owned by the federal government.  The bank is governed by legislation in the Bank of Canada Act which says the bank exists “to regulate credit and currency in the best interests of the economic life of the nation.”

There are three main ways the Bank of Canada shows up in our daily lives.

Monetary Policy is designed to preserve the value of money.  This is the part of the bank’s job that most people know about, because it gets the most coverage in the media.  The factor in monetary policy is managing inflation to keep it low, stable and predictable.

The bank’s main tool for managing inflation is interest rates.  The bank sets its Policy Rate eight times a year.  It is the rate large financial institutions are charged when they borrow money from the Bank of Canada, or each other, to settle their daily accounts.  The Policy Rate is also known as the “overnight” rate.

Financial institutions base their interest rates on the Policy Rate.  As it goes up or down so do the rates for business and consumer borrowing such as variable rate mortgages, lines of credit and car loans.  Raising interest rates makes borrowing and spending more expensive which slows down economic activity and inflation.  Lowering rates does the opposite.

The Policy Rate can also influence the value of our dollar which affects the cost of Canadian goods and services on world markets.  Higher interest rates tend to increase the value of the Canadian dollar, making Canadian goods more expensive which, again, slows economic activity and inflation.

So, you can see the bank is performing an economic balancing act.

The Bank of Canada is known as “the banker’s bank” and it helps manage and regulate the country’s Financial System.  The bank facilitates borrowing and investing for Canada’s large financial institutions and it regulates those institutions.  The bank controls how much they can lend out by setting standards for how the loans are secured and imposing cash reserve requirements.

The most obvious way the Bank of Canada enters our lives is through our Currency.  The bank is responsible for designing, issuing and delivering bank notes (coins are the responsibility of the Royal Canadian Mint).  By First National Financial. 

Mortgage Interest Rates

Prime lending rate is 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval is at 5.19%.  Fixed rates moved up slightly.  Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages somewhat attractive, but still not a significant enough spread between the fixed and variable to justify the risk for most.

There is never a better time than now for a free mortgage check-up.  It makes sense to revisit your mortgage and ensure it still meets your needs and performs optimally.  Perhaps you’ve been thinking about refinancing to consolidate debt, purchasing a rental or vacation property, or simply want to know you have the best deal?  Whatever your needs, we can evaluate your situation and help you determine what’s the right and best mortgage for you.