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.

Industry & Market Highlights 

First-Time Home Buyer Incentive

As of September 2nd 2019, Canadians interested in the First-Time Home Buyer Incentive can submit their applications for a shared equity mortgage with the Government of Canada. 

The First-Time Home Buyer Incentive helps qualified first-time homebuyers reduce their monthly mortgage carrying costs without adding to their financial burdens.

How it all works – Find full details here.

Government’s homebuying incentive called a cynical election ploy 

The First-Time Home Buyer Incentive is a week old, but don’t expect skyrocketing demand for a program expected to help fewer Canadians than the number bandied by the federal government.

“If I’m a betting man, I’m going to suggest this thing has smaller uptake than the 100,000 number the government keeps waiving around,” said Robert McLister, mortgage editor of Rates.ca and founder of Ratespy.com. “In the majority of cases, you qualify for less—with a regular down payment, the typical borrower qualifies for 4.5 times their income, but now it’s capped at four times their income. Under the regular 5% down, vanilla CMHC mortgage, you can qualify for up to $60,000 more.”

The First-Time Home Buyer Incentive—in which the Canada Mortgage and Housing Corporation will provide up to 10% on the purchase price of a new build and 5% on a resale—caps household income at $120,000. The policy states that “participants’ insured mortgage and the incentive amount cannot be greater than four times the participants’ annual household incomes.”

According to calculations provided by Ratehub.ca, a household with $100,000 of income that puts a 5% down payment qualifies for a $479,888 home. This leaves a mortgage amount of $474,129 after down payment and the CMHC insurance premium. The household qualifies for a mortgage of 4.74 times their income.

If the same household elected to participate in the First-Time Home Buyer Incentive their maximum purchase price drops to $404,858, because this is the maximum they can afford while keeping the total between their mortgage and the government incentive below four times their income.

“The number one issue facing first-time homebuyers is how much they qualify for, not the monthly payment after the home closes, and that’s what this is aimed at,” said James Laird, co-founder of Ratehub.ca. “They qualify for less if they use this program.”

The program is suitable for homebuyers in markets with weak housing demand and economic fundamentals. McLister added that borrowers who use the First-Time Home Buyer Incentive, and plan on living in the home for around five years, could potentially save more on interest and default insurance premiums than they’d give back to CMHC.

“Who it’s not for is someone who plans to live there for a long time, especially in a housing market that’s hotter and has stronger fundamentals,” he said. “In that case, it could cost you more in the equity you give up than what you save on interest and default insurance premiums.”

So why was it introduced in the first place?

“If you’re running for election in the fall and one of the hottest button issues is housing affordability and you don’t do anything to help millennial voters, your odds of winning the election are lower,” said McLister. “So they have tried to appear like they’re coming to the rescue with a program that has very little impact.”  By Neil Sharma

First-Time Home Buyer Incentive is live, but industry is skeptical  

As Canadians enjoyed the Labour Day holiday, a new government scheme was officially launched that aims to help more people get on the housing ladder.

But the First-Time Home Buyer Incentive may not be the panacea for potential new entrants into Canada’s housing market that Justin Trudeau and his ministers hope.

Critics say that it will not make a widespread difference to the ability of first-time homebuyers to afford to follow their homeownership dreams.

With the program’s requirements for household earnings of a maximum $120,000 and a mortgage-to-income ratio capped at 4 times household income, the top-end of the homes that the scheme will help to buy is far short of the $826K average home price in Vancouver or $982K in Toronto.

“It’s a very narrowly-focused program,” Royal LePage President Phil Soper told Bloomberg. “It’s just not a big enough slot of the market to move it.”

100K borrowers or 5K?

CMHC, which is administering the program, estimates that it could help 100,000 first-time homebuyers but Mortgage Professionals Canada thinks the figure could be as low as 5,000 as potential buyers are dissuaded by giving up equity in their new home and mortgage insurance requirements.

“The government says it wants to make homeownership more affordable and accessible, but its actions say otherwise,” MPC chief economist Will Dunning told Bloomberg. “The proposals “to improve access are likely to have only small positive effects.”  By Steve Randall.

Bank of Canada Interest Rate announcement  

The Bank of Canada made their Interest Rate announcement on Wednesday, September 4th and 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.  View the full press release HERE.

Economic Highlights

Bank of Canada reveals latest interest rate decision  

The Bank of Canada resisted pressure from investors by declining to signal it will soon follow global peers in easing monetary policy.

At a decision Wednesday, policy makers left interest rates unchanged for a seventh straight meeting and said stronger than expected growth, as well as inflation on target, means current levels of stimulus are where they should be. That’s despite the escalating trade war between China and the U.S. undermining global economic momentum.

The Bank of Canada’s reluctance to signal a greater willingness to cut rates — which makes it an outlier as counterparts around the world ease policy — may come as a surprise to some investors and analysts who had expected more dovish language and some easing later this year. The Canadian dollar rose after the statement.

“This is a bit more hawkish than we anticipated,” said Brett House, deputy chief economist at Bank of Nova Scotia. It’s “not a clear change in bias. It doesn’t close the door on an October cut, but it doesn’t set up an October cut either.”

Wednesday’s narrative underlined trade risks and reiterated that Canadian growth is likely to slow in the second half of this year — all of which suggests policy makers are far from confident about the economic outlook and could be keeping the door open for increasing stimulus if things worsen.

Global Easing

But the net effect of the statement is a continuation — at least explicitly — of the central bank’s reluctance to show its hand on whether it plans to join other central banks like the Federal Reserve in easing policy, preferring instead to wait for more concrete signs of weakness before moving.

“In sum, Canada’s economy is operating close to potential and inflation is on target. However, escalating trade conflicts and related uncertainty are taking a toll on the global and Canadian economies,” the central bank said in its statement. “In this context, the current degree of monetary policy stimulus remains appropriate.”

The Canadian dollar rose 0.4% to C$1.3280 per U.S. dollar at 10:09 a.m. Swaps trading suggests investors are fully pricing in a cut by December, with strong odds of a second by this time next year. That’s still less than the four rate cuts priced by the Federal Reserve over that time.

“The Bank of Canada is stalling but it will eventually be peer-pressured into interest-rate cuts,” Frances Donald, chief economist at Manulife Investment Management Ltd., told BNN Bloomberg.

Waiting too long is a risky strategy that could backfire if policy makers are late to recognize spillover effects on businesses and households, particularly since the country’s outlier status on policy could fuel gains in the Canadian dollar.

Bank of Canada officials said they will pay close attention to “global developments and their impacts on the outlook for Canadian growth and inflation.”

The case for cheaper money isn’t as compelling in Canada as it is elsewhere. A strong run of economic data affords the Bank of Canada opportunity to resist — as it has so far — the dovish turn in global policy.

Interest rates also remain stimulative in real terms, and borrowing costs have already declined sharply in the country because of falling global bond yields — a development the Bank of Canada cited in its statement. But escalating tensions between China and the U.S. are getting tougher to overlook. Trump’s tariffs on imports from China have already become a major reason behind global factory weakness.

The Bank of Canada characterized Canadian second quarter growth of 3.7% annualized as “strong” but noted some of the strength was probably temporary and pointed out that consumption spending was unexpectedly soft.  By Bloomberg News, Theophilos Argitis.

Mortgage Interest Rates

Prime lending rate is 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval is 5.19%.  Fixed rates are hold 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.

Other Industry News & Insights

Roundup of the latest mortgage and housing news.

From Mortgage Professionals Canada.

• The bank of mom and dad will lend — and even issue mortgages (Global News)
• Canadian Real Estate Near Bottom Of Global Rankings, But Maybe Not For Long (Huffington Post)
• Canadian Mortgages Pick Up, But Not Nearly As Much As HELOCs (Better Dwelling)
• Odd: Canadian Mortgage Credit Growth Is Rising, While Consumer Growth Falls (Better Dwelling)
• The Toronto housing market has made a ‘near-perfect landing’ (Livabl)
• Toronto home sales jump 13.4% in August as supply shrinks (BNN Bloomberg)
• Why these market experts say Canadian interest rates will be cut this fall (Livabl)
• Canadians keep borrowing despite mounting payment costs (Canadian Real Estate Wealth)
• Ottawa’s homebuyer plan not a big help in Canada’s pricey markets (Vancouver Sun)
• Renovating existing homes can accommodate newcomers better than building new rentals (Vancouver Sun)
• Ontario first time home buyers are the most pessimistic in the country (The Star)
• Is It Worth It To Buy A Condo In Canada Anymore? New Book Warns Of Risk Of Collapse (Huffington Post)
• This big bank economist says Canadian mortgage borrowers have a ‘rare opportunity’ (Livabl)
• These markets get the most help from Canada’s homebuyer incentive (Livabl)
• Canadian Mortgage Growth Picks Up, But Is Still The Slowest In Over 20 Years (Better Dwelling)
• Could your client use the new first-time buyers incentive? (REM Online)
• Trudeau’s Homebuyer Plan Offers Little Solace in Canada’s Pricey Markets (BNN Bloomberg)
• Why the Bank of Canada won’t fight a recession till there is one: Don Pittis (CBC)
• Here’s what you need to know about the First-time Home Buyer Incentive (CTV)
• Canadian home prices are set to rise, but by how much? (Livabl)
• Canadian Real Estate Prices Return To Growth After Brief Decline (Better Dwelling)
• The Biggest Housing Changes in Canada in the Last 4 years (Point2Homes)
• “Ghost” Homes Across Canada: A Decade of Change in 150 Cities (Point2Homes)
• Toronto New Condo Prices Rise, While Detached Losses Get Bigger (Better Dwelling)

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.

• So Where Is the Next House Price Bubble Brewing? (Bloomberg)
• Why this veteran builder thinks prefabricated homes are the way of Toronto’s future (The Star)
• Bank Of Mom And Dad Is Paying Canadian Millennials’ Rent: Survey (Huffington Post)
• Canadian Mortgage Growth Rises From Lows, But Still Not Quite Back To Normal (Better Dwelling)
• There are 246 cranes towering over the Toronto region as suburban condos take off (Livabl)
• Toronto home price gains will barely match inflation for next 2 years (Livabl)
• What’s the ballot issue in 2019? The high cost of living (CBC)
• Housing costs are foremost in the minds of young Canadians – poll (Canadian Real Estate Wealth)
• Mortgage stress tests may be in need of a ‘tweak’: RBC’s McKay (BNN Bloomberg)
• Housing scarcity forcing many Toronto residents to stay put (Canadian Real Estate Wealth)
• Alternative mortgage lenders gain ground, loans performing well (BNN Bloomberg)
• How does the latest Canadian housing downturn compare to past crashes? (Livabl)
• Canadian Mortgage Growth Rate, Weakest in More Than 25 Years (Point2Homes)
• Where are the buyers’ and sellers’ markets in Canada right now? (Real Estate Magazine)
• New Statistics Canada Data Displays Growth In Multi-Unit And Single-Unit Dwellings (Point2Homes)
• B.C. Is Home To The Fastest Cooling Real Estate Markets In Canada (Better Dwelling)
• Fewer housing options have Torontonians moving less, report says (The Star)
• Canadians have been using their homes like ATMs for years. Is that beginning to change? (Livabl)
• National Bank Of Canada: Don’t Take Real Estate Price Increase As A Sign Of “Vigour” (Better Dwelling)
• As Toronto housing stabilizes, bidding wars make a comeback (BNN Bloomberg)
• Toronto house prices are on the rise — again (The Star)
• As Vancouver housing struggles, home prices are increasing in these 6 BC markets (Livabl)
• Healthy Housing Starts for Canada (Point2Homes)
• Ontario Real Estate Association calls on Ottawa for relaxed mortgage rules (BNN Bloomberg)
• Canadian home prices hit decade low for growth (Livabl)
• Montreal homes are selling almost as fast as they’re listed (Livabl)
• Slowest lending growth in 25 years reveals the true impact of mortgage stress tests (Vancouver Sun)
• Don’t expect Canada’s housing market to catch fire again any time soon: RBC (Livabl)
• Alternative lenders increase share of slowing Canadian mortgage market: CMHC (BNN Bloomberg)
• The 7 hottest housing markets in Canada right now (Livabl)
• Housing affordability is so bad most Canadians are open to moving (Livabl)
• Canadian Household Borrowing Rates Have Nearly Fallen Back To Last Year’s Levels (Better Dwelling)
• Survey Reveals Canadians Have Mixed Feelings About The Real Estate Market (Building.ca)
• Home sales edge higher in June, with strong gains in Ontario, Quebec (CBC)
• Canada’s Weakest Housing Markets Now Include Toronto, Vancouver (Huffington Post)
• What it costs to rent a home across Canada (Livabl)
• Back from the brink: How Home Capital fought to win back confidence (BNN Bloomberg)
• Big Data Week Offers Clues on Canadian Rates and Economic Outlook (Bloomberg)
• House Prices Are Falling In 25 Canadian Communities ― Here’s The Scoreboard (Huffington Post)
• Amid affordability concerns, demand for Toronto condos intensifies (Canadian Real Estate Wealth)
• Feds should assess housing ‘broadly,’ revisit mortgage rules: ATB CEO (BNN)
• Toronto set for record apartment surge after rent control lifted (BNN)
• Bank of Canada Holds Rates Amid Heightened Trade Tensions (CMT)
• Loonie near 2019 high after central bankers take dollar on wild ride (BNN)
• First-Time Home Buyer Incentive doing little to help buyers break into Vancouver market (CityNews)