10 Sep

WEEKLY RESIDENTIAL  MARKET UPDATE 

General

Posted by: Adriaan Driessen

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.

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.

1 Aug

RESIDENTIAL MARKET UPDATE

General

Posted by: Adriaan Driessen

Industry & Market Highlights 

Bank of Canada Benchmark Qualifying Rate

Effective July 22, 2019, the Bank of Canada 5-year Benchmark Qualifying Rate is 5.19%.

What you need to know

  • The qualifying rate legislation was created to ease customer affordability in the event renewal interest rates are higher than the rate received at origination. The Bank of Canada publishes the Benchmark Qualifying Rate.

Qualifying Mortgage Rate Falls For First Time Since B-20 Intro

The interest rate used by the federally regulated banks in mortgage stress tests has declined for the first time since 2016, making it a bit easier to get a mortgage. This is particularly important for first-time homeowners who have been struggling to pass the B-20 stress test. The benchmark posted 5-year fixed rate has fallen from 5.34% to 5.19%. It’s the first change since May 9, 2018. And it’s the first decrease since Sept. 7, 2016, despite a 106-basis-point nosedive in Canada’s 5-year bond rate since November 8 (see chart below).

Five-Year Canadian Bond Yield

The benchmark qualifying mortgage rate is announced each week by the banks and “posted” by the Bank of Canada every Thursday as the “conventional 5-year mortgage rate.” The Bank of Canada surveys the six major banks’ posted 5-year fixed rates every Wednesday and uses a mode average of those rates to set the official benchmark. Over the past 18-months, since the revised B-20 stress test was implemented, posted rates have been almost 200 basis points above the rates banks are willing to offer, and the banks expect the borrower to negotiate the interest rate down. Less savvy homebuyers can find themselves paying mortgages rates well above the rates more experienced homebuyers do. Mortgage brokers do not use posted rates, instead offering the best rates from the start.

The benchmark rate (also known as, stress test rate or “mortgage qualifying rate”) is what federally regulated lenders use to calculate borrowers’ theoretical mortgage payments. A mortgage applicant must then prove they can afford such a payment. In other words, prove that amount doesn’t cause them to exceed the lender’s standard debt-ratio limits.

The rate is purposely inflated to ensure people can afford higher rates in the future.

The impact of the B-20 stress test has been very significant and continues to be felt in all corners of the housing market. As expected, the new mortgage rules distorted sales activity both before and after implementation. According to TD Bank economists in a recent report, “The B-20 has lowered Canadian home sales by about 40k between 2017Q4 and 2018Q4, with disproportionate impacts on the overvalued Toronto and Vancouver markets and first-time homebuyers…All else equal, if the B-20 regulation was removed immediately, home sales and prices could be 8% and 6% higher, respectively, by the end of 2020, compared to current projections.”

According to Rate Spy, for a borrower buying a home with 5% down, today’s drop in the stress-test rate means:

  • Someone making $50,000 a year can afford $2,800 (1.3%) more home
  • Someone making $100,000 a year can afford $5,900 (1.3%) more home
  • (Assumes no other debts and a 25-year amortization. Figures are rounded and approximate.)

For a borrower buying a home with 20% down, today’s drop in the stress-test rate means:

  • Someone making $50,000 a year can afford $4,000 (1.4%) more home
  • Someone making $100,000 a year can afford $8,300 (1.4%) more home
  • (Assumes no other debts and a 30-year amortization. Figures are rounded and approximate.)

Bottom Line: Almost no one saw this coming due to the stress test rate’s obscure and arcane calculation method (see Note below). This 15 basis point drop in in the qualifying rate will not turn the housing market around in the hardest-hit regions, but it will be an incremental positive psychological boost for buyers. It should also counter, in some small part, what’s been the slowest lending growth in five years.

Note: Here’s the scoop on why the qualifying rate fell. According to the Bank of Canada:

“There are currently two modes at equal distance from the simple 6-bank average. Therefore, the Bank would use its assets booked in CAD to determine the mode. We use the latest M4 return data released on OSFI’s website to do so. To obtain the value of assets booked in CAD, simply do the subtraction of total assets in foreign currency from total assets in total currency.”

The BoC explains further:

“Prior to July 15th, we were using April’s asset data to determine the typical rate as that was what was published on OSFI’s website. On July 15th, OSFI published the asset data for May, and that is what we used yesterday to determine the 5-year mortgage rate. As a result, the rate changed from 5.34% to 5.19%.”  Dr. Sherry Cooper

Chief Economist, Dominion Lending Centres

Equifax to pony up nearly $1 billion in settlement 

Equifax will pay up to US$700 million to settle with U.S. federal and state governments over a 2017 data breach that exposed the private information of nearly 150 million people, including thousands in Canada.

The settlement with the U.S. Consumer Financial Protection Bureau and the Federal Trade Commission, as well as 48 states and the District of Columbia and Puerto Rico, would provide up to US$425 million in monetary relief to consumers, a US$100 million civil money penalty, and other relief.

The breach was one of the largest ever to threaten private information. The consumer reporting agency, based in Atlanta, did not detect the attack for more than six weeks. The compromised data included Social Security numbers, birth dates, addresses, driver license numbers, credit card numbers and in some cases, data from passports.

“The consumer fund of up to US$425 million that we are announcing today reinforces our commitment to putting consumers first and safeguarding their data – and reflects the seriousness with which we take this matter,” said Equifax CEO Mark Begor.

Canada’s Office of the Privacy Commissioner concluded in April that the company fell short of their privacy obligations to Canadians, including poor security safeguards and holding information too long, but it did not level fines.

The privacy commissioner, which found that about 19,000 Canadians were affected by the breach, said the company entered into a compliance agreement and had taken steps to improve its security and accountability.

Equifax Inc. detected the attack on July 29, 2017 and contained it the following day. However, Equifax Canada wasn’t notified of the breach until just before the U.S. parent company publicly disclosed it on Sept. 7, 2017.

The breach occurred after hackers gained access to Equifax Inc.’s systems through a vulnerability the company had known about for more than two months, but had not fixed.

While Equifax Canada offered free credit monitoring to breach victims for at least four years, other protections didn’t match what was offered by the parent company, including credit freezes that restrict access to credit files.

The privacy commissioner also found that the transfer of information about Canadians to the U.S. without their knowledge was inconsistent with its obligations to obtain consent before disclosing personal information to third parties located in another country.

Equifax stock, which plunged 30 per cent in the days following the disclosure of the breach, have returned to levels where they traded before the incident.

Affected U.S. consumers may be eligible to receive money by filing one or more claims for conditions including money spent purchasing credit monitoring or identity theft protection after the breach and the cost of freezing or unfreezing credit reports at any consumer reporting agency.

All impacted consumers in the U.S. would be eligible to receive at least 10 years of free credit-monitoring, at least seven years of free identity-restoration services, and, starting on Dec. 31 and extending seven years, all U.S. consumers may request up to six free copies of their Equifax credit report during any 12-month period.

If consumers choose not to enrol in the free credit monitoring product available through the settlement, they may seek up to $125 as a reimbursement for the cost of a credit-monitoring product of their choice. Consumers must submit a claim in order to receive free credit monitoring or cash reimbursements.

“Companies that profit from personal information have an extra responsibility to protect and secure that data,” said FTC Chairman Joe Simons. “Equifax failed to take basic steps that may have prevented the breach that affected approximately 147 million consumers. This settlement requires that the company take steps to improve its data security going forward, and will ensure that consumers harmed by this breach can receive help protecting themselves from identity theft and fraud.”

The company said earlier this year that it had set aside around US$700 million to cover anticipated settlements and fines.

The settlement must still be approved by the federal district court in the Northern District of Georgia.  By Canadian Press.

Everything Canadians need to know about the Capital One data breach

The recent data breach that was announced by Capital One Financial Corp. has affected about 100 million people in the United States and about six million people in Canada.

The hacker obtained unauthorized access to personal information of Capital One customers and those who applied for Capital One credit card products.

Capital One said in a statement that the person responsible has been arrested. The U.S. financial institution, which is one of the world’s largest issuers of credit cards, said more specific details on how this will impact customers will be shared over the next few days.

What do we know so far about how this will affect Canadians?

The different kinds of information breached

Information from applications for Capital One credit card products between 2005 and early 2019 makes up the largest set of data compromised.

Capital One said the breach includes names, addresses, postal codes, phone numbers, email addresses, dates of birth and income.

Aside from information found on credit card application forms, some credit card customer data was also involved. This includes credit scores, limits, balances, payment history, contact information and some transaction history from the last three years.

Approximately one million Social Insurance Numbers were compromised.

Capital One said that customer login credentials were not hacked.

How to know if your data has been breached

Capital One said in a statement that they will notify customers if their data has been compromised, and free credit monitoring and identity theft insurance will be offered to anyone impacted by the breach.

The company did not specify how customers will be notified, but said more information will be available within the next few days. Capital One said they will not be calling anyone about the breach. If anyone does receive a call, it’s a scam.

If anyone has provided personal information over the phone or clicked on fraudulent links over email or text, Capital One urges customers to call them immediately and change their online banking password

Capital One credit cards issued in Canada

Capital One offers Canadian customers various Capital One Mastercard credit card products including a cashback card for Costco Wholesale members.

Retailer Hudson’s Bay Co. also offers a Mastercard product where the credit itself is being offered by Capital One.

“There is no indication at this time that this issue impacts any of our businesses’ credit cards or card applications,” HBC vice president of corporate communications Nicole Shoenberg said in an email.

“Customers should feel comfortable shopping with us in stores and online.”

Costco Canada did not immediately respond to a request for comment about what impact the breach has had on their networks.

How to monitor your accounts in the meantime

Capital One encourages customers to monitor their accounts for suspicious activity. If anyone notices suspicious activity on their account, Capital One says to call the number on the back of their credit card.

Customers can also order a copy of their credit report from either Equifax Canada or TransUnion Canada. Either credit bureau can place fraud alerts on credit reports for up to six years.  By Melissa Nennardo, CBC News.

 

Short-term rentals and Airbnb: What you need to know

What are the rules for Airbnb?

Every city will set its own rules for renting out all or part of a property on Airbnb or other short-term rental websites. In Toronto, for example, it is expected that only a principal residence will be able to be used for Airbnb. You can either rent out up to three of your bedrooms, or you can rent out the entire home, up to 180 days per year. You will also have to pay $50 to register the unit with the city and charge a four-per-cent tax.

Are guests considered tenants under the Residential Tenancies Act of Ontario?

This is not a simple answer. If you are living in a home or condominium and you just rent out rooms to guests on Airbnb, they are not tenants and can be treated as a guest and must leave when you ask them to leave. You do not have to use the Ontario Standard Form Lease. However, if they are renting your entire home, even for a few days, an argument can be made that they are in fact tenants and you need to sign the Ontario Standard Form Lease, which will govern the relationship. It will make no difference if this is a furnished apartment or not.

Can you evict a tenant to turn the unit into an Airbnb?

The likely answer to this is no in Ontario. While an eviction is possible if you are converting the unit to a commercial use, it is not permitted when the business will be for Airbnb. It will also likely not be possible to evict someone using the personal use family reason and then trying to rent all or part of the home on Airbnb before one year after the eviction. This could lead to penalties under the act.

Can you evict a tenant who is renting your unit on Airbnb without permission?

The answer is likely yes. This would be considered either an illegal sublet if no permission was granted in advance and a violation of the act, in that the tenant would be subletting for more money than they are paying in rent. However, the landlord would have to start eviction proceedings regarding any sublet within 60 days of finding out.

Will insurance cover any damage caused by guests?

Airbnb and similar sites offer insurance coverage, but it is recommended that you also inform your own insurance company if you are planning to rent it out, since the risk of damage will increase. For example, if the guest and owner privately agree to extend their stay without going through the short-term website, the website insurance policy will likely deny any claim. Further, if damage occurs that was not caused by the guest, the owner’s insurance claim to their own company will likely be denied if they were not advised about the new use of the property.

By Mark Weisleder

 

Mortgage Update - Mortgage Broker London

Economic Highlights

The Fed’s Quarter-Point Rate Cut Not the Start of Something Big

The Federal Open Market Committee (FOMC) cut the overnight target rate by 25 basis points as expected today. Chairman Jerome Powell, however, said it was designed to “insure against downside risks” rather than to signal the start of multiple rate cuts. President Trump called for “large” rate cuts on Twitter and has for months pressured the Fed to ease monetary policy. It is very unusual for the Fed to cut interest rates in the face of the continued strength in the US economy and the enormous declines in unemployment.

I cannot remember a reversal of policy with so little impetus. Indeed, the opening sentences of the FOMC statement are, “Information received since the Federal Open Market Committee met in June indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low.”

The White House pressure is without precedent to the point that Trump publically threatened to demote Chairman Powell if the Fed didn’t cut rates. He also proposes to fill vacant seats with known rate doves. This infringement on Fed independence is very dangerous for the credibility of the central bank. Moreover, it will likely weaken the US dollar if additional rate cuts follow quickly.

Consumer spending remains strong; however, a slowdown in business fixed investment was caused by the President’s insistence on generating trade tensions with China, Canada, the UK and other trading partners. The global economy has slowed because of this uncertainty. China’s economy has decelerated significantly, and manufacturing and agricultural exports to China have been particularly hard hit.

Another issue of concern to the FOMC was the low level of inflation. The Fed targets a 2% inflation rate. The Fed’s favourite inflation measure is now running at about 1.4%-to-1.6%.

Two Federal Reserve Bank governors voted against this action preferring at this meeting to maintain the prior target range. It was the first time since Powell took over as chairman in February 2018 that two policymakers dissented.

Today’s action was the first interest rate cut since the financial crisis began more than a decade ago. The Fed started to normalize interest rates from historically low levels in 2015 as the US economy was recovering and continued to raise the fed funds rate until December 2018. Normalization of monetary policy also included the gradual shrinking of the Fed’s balance sheet–selling bonds into the marketplace, slowly reducing liquidity. Today, the Fed stated it would cease this activity as of tomorrow, rather than the planned date in September.

Bottom Line: The Bank of Canada will not follow the Fed. Canadian interest rates are already below those in the US. While the target range for the US fed funds rate is now 2%-to-2.25%, the target overnight rate in Canada is 1.75%. Moreover, today’s real GDP report for May surprised on the high side, suggesting that GDP growth in the second quarter could be close to 3%. This is well above the Bank’s earlier estimate and justifies the Bank’s remaining on the sidelines.

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

 

More weight on rates  

Some more weight has been added to the scale that is tipping in favour of an interest cut in the United States.  Economic growth, in the U.S., slowed to 2.1% in the second quarter, down a full percentage point, from 3.1% in the first quarter.

A key factor in the slowdown is a 5.2% drop in exports.  Many analysts see that as self-imposed pain brought on by the Trump administration’s trade fight with China.  The dispute is also contributing to the slowdown in Europe, and elsewhere.

The drop in GDP growth is seen as additional ammunition for those targeting the U.S. Federal Reserve for a rate cut this week.  However, there are prominent analysts who say a cut is not needed at this time.  U.S. growth remains above the five-year average and unemployment is at 50 year lows.

Last week the European Central Bank held the line on its benchmark interest rate, but made it clear it intends to take steps to boost the Euro-Zone’s sagging economy.  The ECB is signalling the distinct possibility of rate cuts and it is also looking at restarting its simulative bond buying program.

The Bank of Canada remains firmly on the sidelines.  It is content with the country’s employment rate, inflation, and its current growth figures.   By First National Financial.

Mortgage Interest Rates

Prime lending rate is 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval reduced to at 5.19% increasing the average mortgage qualification with about $10,000 – not any significant change when it comes to qualifying for home ownership.  Fixed rates 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.

Mortgage Update - Mortgage Broker London

Mortgage Update – Mortgage Broker London

Other Industry News & Insights
Roundup of the latest mortgage and housing news. 
From Mortgage Professionals Canada. 
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.
 
Adriaan Driessen
Mortgage Broker 
Dominion Lending Forest City Funding 10671
Cell: 519.777.9374
Fax: 519.518.1081
415 Wharncliffe Road South
London, ON, N6J 2M3
Lori Richards Kovac
Mortgage Agent
Dominion Lending Forest City Funding 10671
Cell: 519.852.7116
Fax: 519.518.1081
415 Wharncliffe Road South
London, ON, N6J 2M3
Adriaan Driessen
Sales Representative & Senior Partner
PC275 Realty Brokerage
Cell: 519.777.9374
Fax: 519.518.1081
415 Wharncliffe Road South
London, ON, N6J 2M3
3 Jul

RESIDENTIAL MARKET UPDATE

General

Posted by: Adriaan Driessen

Industry & Market Highlights \

CMHC’s First-Time Home Buyer Incentive Falls Short of Expectations

The Canada Mortgage and Housing Corporation held an official announcement yesterday to release details of its First-Time Home Buyer Incentive (FTHBI).

While officials reiterated how this shared-equity program will help young middle-class Canadian buyers, there were scant new details beyond what has previously been confirmed since the program was first announced in the March budget.

A Recap of the FTHBI First-Time Home Buyer Incentive

  • CMHC will contribute 5% of a down payment for the purchase of an existing home, or 10% for the purchase of a new build
  • The mortgage must be default insured
  • The applicants’ household income must be less than $120,000
  • No monthly payments are required, and this amount can be paid back at any time, or upon the sale of the house
  • CMHC shares in both the proportionate gains or losses in home value
  • The insured mortgage plus incentive cannot be more than four times the participants’ household income (roughly a $565,000 maximum purchase price for someone making a 15% down payment)
  • The program will be available to buyers on September 2, 2019
  • The government anticipates 100,000 first-time buyers will take advantage of the program over the next three years at a cost of $1.25 billion.

It was also confirmed on Monday that participants would have to repay CMHC’s 5% or 10% contribution within 25 years, or when the property is sold. The incentive amount could also be repaid at any time prior to that and would not be subject to prepayment penalties.

In all cases, the incentive amount would have to be paid back at current fair market valuation, which would be determined by CMHC using an independent appraisal.

Jean-Yves Duclos, the Minister of Families, Children and Social Development, which oversees the CMHC, said the biggest benefit for first-time buyers is that the incentive would reduce monthly mortgage payments.

“The First Time Home-Buyer Incentive is designed to benefit those who need more assistance with housing costs, middle-class Canadians,” Duclos said. “Thanks to mortgage payments that are more affordable, many families will have hundreds of dollars more each month in their pockets.” Duclos said a family buying a $500,000 house through the incentive would save up to nearly $300 a month in interest payments. CMHC provided a full breakdown of potential savings here.

But Will it Work?

There had been many skeptics of the program since it was revealed three months ago, and yesterday’s official announcement did little to quell the criticism.

The key argument is that while the program is aimed to assist young first-time buyers who have been priced out of the most expensive markets, buyers in Toronto and Vancouver will be hard-pressed to find a property under $500,000.

“We think it’s definitely going to have very regional application,” said Paul Taylor, President and CEO of Mortgage Professionals Canada. “In the two most expensive cities, where we would suggest first-time homebuyers need the most support, this solution is not really going to do that.”

On Twitter, CMHC President and CEO Evan Siddall responded by saying: “No program is going to work as well in higher priced markets. Using 2018 data, 2,300 homebuyers would have qualified in Toronto and 1,100 in Vancouver. Around 25% of home sales in Toronto in 2018 were for homes under $500K and 17% in Vancouver.”

Others point out that buyers would actually be able to qualify for a larger mortgage if they don’t use the FTHBI because of the program’s restriction to those with a mortgage less than or equal to four times their total gross income.

“A qualified borrower making $60,000 a year and putting 5% down, for example, could afford a roughly $269,000 home with a regular default-insured mortgage, but only $253,000 using the FTHBI,” wrote RateSpy.com’s Rob McLister. “That, the ~$565,000 maximum purchase price and the need to cough up a chunk of your home value gains are what will limit the FTHBI’s appeal, especially in our biggest cities.”

Siddall has publicly said the CMHC spent months tailoring a “Goldilocks” design so that the program would help some first-time buyers, but not enough to impact the housing market to an extent that would contribute to rising prices.

Adam Vaughan, a Toronto MP and Parliamentary Secretary to the Minister of Families, Children and Social Development, responded to a question about the program’s application in a high-priced city like Toronto.

“Buying a new home in Forest Hill (is), probably unlikely,” he said. “Buying a home here in Mississauga, absolutely a possibility. And on transit lines, it gets you to jobs right across the GTA.” By Steve Huebl.

The affordability fight

A new report out of the University of British Columbia says millennials – who make up the bulk of the highly coveted first-time buyer cohort – are still wildly priced out of the housing market.

The report, titled “Straddling the Gap”, says 25 to 34 year-olds are stuck between high home prices, rising rents, stagnant wage growth and the threat of rising interest rates.  It says that – over the next decade, on a national basis – average home prices would have to drop by more than $220,000 (about half their current value), OR wages would have to increase by more than $93,000 a year (about double their current level) in order for housing to be affordable.

In a hot market, like Vancouver, prices would need to drop by about 75%, OR wages would need to increase by about 400%.

Over the past 40 years the home-price-to-income ratio has risen from about 4 to 1, to more than 10 to 1.  Millennials are facing 13 years of saving in order to accumulate a 20% down payment, according to the report.  Their parents and grandparents typically had to save for just four years.

The UBC report comes as the City of Montreal is finalizing a proposed by-law that, the mayor says, will address affordability concerns.  The Montreal market has been picking up steam.  According to CMHC, sales are outpacing new listings and there is evidence of overheating.

Montreal mayor Valérie Plante is worried rising prices are forcing people off the island and into the suburbs.  A recent study shows 24,000 people left Montreal for outlying neighbourhoods between July 2017 and July 2018.

Montreal’s new by-law would force developers to set aside as much as 20% of new units for affordable housing, social housing or family-sized units.  The law is set to take effect 2021.  By First National Financial.

Ontario passes legislation to cut red tape, ease housing crisis  

The Ontario government has passed legislation which aims to tackle the province’s housing crisis.

The More Homes, More Choice Act will cut red tape, helps keep costs predictable, and encourages new and innovative solutions to housing design, construction, and ownership.

“Our government wants to put affordable home ownership in reach of more Ontario families, and provide more people with the opportunity to live closer to where they work,” said Steve Clark, Minister of Municipal Affairs and Housing. “That’s why we consulted widely and acted swiftly to face the housing crisis we inherited head on. This legislation will make it easier to build more homes, more quickly, giving people more housing options and helping to bring prices down.”

The Act will also support more housing near transit links to help cut commutes, and with greater scope to build secondary units there should also be positive impact on the rental market.

The Act has been welcomed by Tim Hudak, CEO of Ontario Real Estate Association who said action is critical.

“For the first time in our lifetime, home ownership is on the decline across the country: there is simply not enough supply to meet demand. The Canadian Dream of home ownership has been slipping out of reach for thousands of families, millennials, and new Canadians,” he said.

The association has been calling for bold action for several years and Hudak says that the Act’s inclusion of many of its ideas are key to tackling the housing crisis.

“Ontario REALTORS ® applaud Steve Clark, Minister of Municipal Affairs and Housing and the Ford government for their leadership in helping create the next generation of Ontario home owners,” he added.  By Steve Randall.

Millennials need a major home price drop or sharp wage increase 

Despite some lower prices recently, many young Canadians are still far from able to afford to buy a home according to a new report.

Generation Squeeze says that in many cities there would have to be a major drop in home prices or a significant rise in wages to enable millennials to enter the housing market.

For example, Vancouverites would need their typical full-time wages to increase to $200,400 or four times their current level; or house prices would need to fall by three-quarters (a $795K drop) to make homes affordable (based on CMHC’s measure of households spending no more than 30% of their pre-tax earnings on housing.)

Across Canada, a wage increase to $93,400 a year, almost double current levels; or a home price drop of around half ($223,000) would be required.

“Despite recent nominal declines in housing prices compared to previous years, the gap between the cost of owning a home and the ability of younger Canadians to afford it is at critical levels. If housing markets are levelling out, they remain untenably high,” said Dr. Paul Kershaw, lead author of ‘Straddling the Gap: A troubling portrait of home prices, earnings and affordability for younger Canadians’, and founder of Generation Squeeze.

The report says it now takes a typical young person 13 years to save a 20% down payment on an averaged priced home in Canada, compared to the five years it took when today’s aging population started out as young adults around 1976.

NHS needs extending

Generation Squeeze is calling on the federal government to expand the National Housing Strategy from the current pledge to support 530,000 of the most vulnerable Canadians, to an estimated 1.2 million who are in core housing need.

“A second phase of the National Housing Strategy must be launched to ensure all Canadians can afford a good home — whether renting or owning — by addressing failures in the broader housing market,” said Kershaw.

Generation Squeeze is also calling for the government to embrace “Homes First” as a guiding principle, with policy targets that would ensure that home prices don’t grow faster than local earnings.  By Steve Randall.

Financial Service Regulatory Authority of Ontario

On June 8, 2019, FSRA Ontario assumed the regulation of our sector from FSCO. CMBA Ontario is looking forward to being our members’ voice, with continued collaboration with FSRA.

We encourage our members to embrace the initiatives FSRA is taking on in the upcoming year.

There will be a public consultation announced in the coming weeks on Non Conforming High Risk Syndicated Mortgage Investments.

CMBA will be providing feedback to FSRA and we welcome comments from you!

FSRA is committed to the betterment of the industry, and are open to receiving feedback from you. Should you have any comments or concerns, please provide it directly to FSRA

Please continue to watch the FSRA website in the coming weeks for more info as well as our newsletter and social media outlets.   By Canadian Mortgage Brokers Association Ontario

Feds announce $10M for RCMP to fight money laundering after ministers’ meeting

The federal government has announced $10 million to help the RCMP prosecute money laundering after a special meeting in Vancouver of Canada’s finance and justice ministers to discuss the pervasive problem.

Finance Minister Bill Morneau says the ministers discussed the importance of prosecuting money launderers and the new funds will help co-ordinate information and hold criminals accountable.

Morneau says the ministers discussed making corporate ownership of real estate more transparent through beneficial ownership registries, though there was no final commitment from provinces on the topic.

He says Ottawa cannot simply create a framework for such registries, because there are issues around privacy and regulation, but he heard around the table that everyone was willing to take the next steps.

The federal government promised $160 million to help fight money laundering in the federal budget and Organized Crime Minister Bill Blair says Canada is building a new capacity to respond, investigate and prosecute the problem.

Ontario has requested federal funding on par with British Columbia to fight money laundering, but Blair says they didn’t discuss specific allocations of resources at the meeting.  By The Canadian Press

Economic Highlights

Market Commentary  

Before we discuss current events, I’ll answer some reader mail.  Mikail Alcott, Potato Sprouting Advocate and Knitting Coach asks “How do you approach a typical day as a Treasury Guy?”

Think big, think positive, never show any sign of weakness.  Always go for the throat.  Buy low, sell high.  Fear?  That’s the other guy’s problem.  It’s either kill or be killed.  You make no friends and you take no prisoners.  One minute you’re up half a million in soybeans and the next, boom, your kids don’t go to university and they’ve repossessed your Bentley.

The Basics

It’s been a volatile week as the market sorts through strong Canadian data contrasted with the dovish Fed tone in the US.

5 year GoC bonds are trading at 1.37% with yields as low as 1.28% on Tuesday (on dovish Euro Central Bank chatter and post Raptor parade fatigue) and as high as 1.40% on Wednesday (following strong inflation data)

10 year GoC bonds are trading at 1.48% after touching a low of 1.38% on Tuesday morning and high of 1.49% Tuesday.

Despite the fact that we’re finishing the week off the lows in terms of yield, it’s worth reminding you that just a few months ago, both 5 and 10 year yields were about 50bps higher at 1.90% and 2.00% respectively.

Inflation

On Wednesday morning, reports showed that Canadian inflation quickened in May as the year over year consumer price index (“CPI”) jumped to 2.4% compared to 2.0% last month and median economist forecasts of 2.1%.  Core inflation, the measure most closely watched by policy makers, rose 2.1%, the highest level since February 2012.  Core inflation allows the Bank of Canada to ‘look through’ temporary changes in total CPI and focus on the underlying trend.  Predictably, bonds sold off and yields moved higher by about 7 basis points following the news.

Monetary Policy

Later on Wednesday afternoon the US Federal Open Market Committee (“FOMC”) held their regularly scheduled policy meeting.  The Fed held rates steady, as most expected, but raised the prospect for as many as two potential rate cuts later this year.  Uncertainty amid intensifying trade tensions and muted US inflation make the cuts plausible if not probable.  The overall tone of the Fed’s comments were sufficiently dovish to more than reverse the earlier inflation led rally and bonds yields promptly retreated 8-9 basis points.

The Bank of Canada has kept its key interest rate at 1.75% since October last year and there are mixed opinions about what the Bank will do this year.  Wednesday’s inflation report (and continued strong employment data) may help the bank resist the temptation to follow the Fed’s dovish tone.

For newer readers, when monetary policy makers are ‘dovish’ it means they favour a looser or more accommodating policy because, on balance, they want to stimulate the economy.  This is accomplished most commonly by lowering interest rates.  When Treasury Guy is dovish it means he favours ordering another round because, on balance, he wants to stimulate conversation.

Securitization

On Monday  June 10th Laurentian Bank followed on the heels of Merrill’s NHA MBS issue the previous Friday and issued a $340 million pool of single family residential mortgages at GoC +52.  5 year term Residential MBS spreads have been pretty steady and pools have been trading in the range of +48 to +53 for the last 18 months.

On June 13th, Canada Housing Trust priced the regular 5 year CMB issue.  The $5.5 billion re-opening of the June 2024 maturity date was priced at GoC+33.5 compared to GoC+36.5 when the bond was first issued in March.

On June 14th RBC brought their eighth CMBS issuance from Real Estate Asset Liquidity Trust (“REAL-T”) since its return to market in 2014.  The $446 million issue of sequential pay certificates featured $185 million 3.5 year and $202 million 8.2 year AAA notes with 13% credit support in the from subordinate certificates.  The AAA notes were issued at spreads of +107 and +162 respectively.  Strong investor support ensured the transaction priced inside initial guidance.  Spreads are comparable to those on the last REAL-T issuance in July of 2018.

On Wednesday, RBC launched a $750 million 3-year floating rate covered bond.  This is RBC’s seventh covered bond in the Canadian market but first since 2016 (most covered bond issuance happens in Europe).  The deal was upsized to $1.25 billion on strong demand and priced at CDOR+14.

Commodities

Let’s head on over to commodity corner for a visit.  West Texas Intermediate (WTI) has moved higher after Iran shot down a US military drone this week.  This comes on the heels of the recent tanker attacks.  What a time to be alive!  WTI is now trading around $57.15 per barrel.  That’s down from $75 back in October but still up from the low of $27 set back in February 2016.  It sounds pretty cheap when you consider that a barrel of Mountain Dew would run you $158.

Gold has also moved sharply higher this month and is trading at a 5 year high of $1,397 per ounce as investors turn to gold (and ammunition) to protect them from a gloomy economic outlook.

Other News

A European Union court has ruled that Adidas’ three stripe pattern lacks a ‘distinctive character’ and declared the trademark invalid.  Too bad.  I was hoping to trademark my new line of Treasury Guy apparel with a simple circle.  The ruling that three parallel equidistant stripes of equal width is generic probably hurts my case.  I guess the lesson here is that you should keep your logos sufficiently complicated.  Maybe I’ll call the SCTV Logos Galore people for help.

On Wednesday, our Co-founder and CEO Stephen Smith was inducted in to the Canadian Business Hall of Fame.  Also inducted was Claude Lamoureux, best known for his role as the CEO of the Ontario Teachers’ Pension Plan.  Claude ended his speech with a simple piece of advice I’d like to share.  “When faced with a difficult decision in business, choose the path that helps you sleep well, not the one that helps you eat well.”

On that note, I’d like to offer a piece of my own advice.  If it’s the weekend, then make the decision that helps you drink well.  Once it hits your lips, it’s so good!  By First National Financial, Jason Ellis.

 

Mortgage Interest Rates

Prime lending rate is 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates have dropped between 5-10 basis points in the last two weeks.  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.

 

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.

11 Jun

RESIDENTIAL  MARKET UPDATE

General

Posted by: Adriaan Driessen

Industry & Market Highlights 

CMHC

Statistics released by the Canadian Real Estate Association (CREA) show that national home sales increased in April with most markets recording increases in both transactions and prices.

The number of homes sold rose 3.6% compared with March, on a seasonally adjusted basis. The rebound in sales over the past two months still leaves activity slightly below readings posted over most of the second half of 2018, having dropped in February of this year to its lowest level since 2012.

April sales were up in about 60% of all local markets, with the Greater Toronto Area (GTA) accounting for over half of the national gain.

Actual (not seasonally adjusted) sales activity was up 4.2% year-over-year (y-o-y) in April (albeit from a seven-year low for the month in 2018), the first y-o-y gain since December 2017 and the largest in more than two years. The increase reflects improvements in the GTA and Montreal that outweighed declines in the B.C. Lower Mainland.

“Sales activity is stabilizing among Canada’s five most active urban housing markets,” said Gregory Klump, CREA’s Chief Economist. “That list no longer includes Greater Vancouver, which fell out of the top-five list for the first time since the recession and is well into buyers’ market territory. Sales there are still trending lower as buyers adjust to a cocktail of housing affordability challenges, reduced access to financing due to the mortgage stress-test and housing policy changes implemented by British Columbia’s provincial government,” said Klump.

New Listings

The number of newly listed homes rose 2.7% in April, adding to the 3.4% increase in March. New supply rose in about 60% of all local markets, led by the GTA and Ottawa.

With sales up by more than new listings in April, the national sales-to-new listings ratio tightened marginally to 54.8% from 54.3% in March. This measure of market balance has remained close to its long-term average of 53.5% since early 2018.

Based on a comparison of the sales-to-new listings ratio with the long-term average, about three-quarters of all local markets were in balanced market territory in April 2019.

There were 5.3 months of inventory on a national basis at the end of April 2019, down from 5.6 and 5.5 months in February and March respectively and in line with the long-term average for this measure.

Housing market balance varies significantly by region. The number of months of inventory has swollen far beyond long-term averages in Prairie provinces and Newfoundland & Labrador, giving homebuyers their ample choice. By contrast, the measure remains well below long-term averages in Ontario and Maritime provinces, resulting in increased competition among buyers for listings and fertile ground for price gains.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) appears to be stabilizing, having edged lower by 0.3% y-o-y in April 2019. Among benchmark property categories tracked by the index, apartment units were again the only one to post a y-o-y price gain in April 2019 (0.5%), while two-storey there was little change in single-family home and townhouse/row unit prices from April 2018 (-0.3% and -0.2%, respectively). By comparison, one-storey single-family home prices were down by -1.4% y-o-y.

Trends continue to vary widely among the 18 housing markets tracked by the MLS® HPI. Results remain mixed in British Columbia, with prices down on a y-o-y basis in Greater Vancouver (GVA; -8.5%) and the Fraser Valley (-4.6%), up slightly in the Okanagan Valley (1%) and Victoria (0.7%), while climbing 6.2% elsewhere on Vancouver Island.

Among Greater Golden Horseshoe housing markets tracked by the index, MLS® HPI benchmark home prices were up from year-ago levels in the Niagara Region (6.2%), Guelph (5.1%), Hamilton-Burlington (4.6%) the GTA (3.2%) and Oakville-Milton (2.5%). By contrast, home prices in Barrie and District held below year-ago levels (-5.3%).

Across the Prairies, supply remains historically elevated relative to sales and home prices remain below year-ago levels. Benchmark prices were down by 4.6% in Calgary, 4% in Edmonton, 4.3% in Regina and 1.7% in Saskatoon. The home pricing environment will likely remain weak in these cities until demand and supply return to better balance.

Home prices rose 7.8% y-o-y in Ottawa (led by an 11% increase in townhouse/row unit prices), 6.3% in Greater Montreal (driven by a 7.8% increase in apartment unit prices), and 1.8% in Greater Moncton (led by an 11.5% increase in apartment unit prices).

Bottom Line:

The spring rebound in home sales is most evident in Toronto, where transactions climbed 11%, and prices rose 1.3%. Of 19 major markets tracked by the Ottawa-based real estate association, 16 recorded price gains last month.

One huge exception is Vancouver, which continues to soften. Benchmark home prices in that city were down 0.3% in April and have fallen 8.5% over the past 12 months. Even with the widespread rebound, national home sales are still below historical averages.

Economic fundamentals — from substantial employment gains to a sharp increase in immigration — remain supportive. Governor Poloz said earlier this week that he expects the housing markets to return to a more normal pace in the second half of this year. Benjamin Tal, the deputy chief economist at CIBC, reported yesterday that housing demand is stronger than suggested by official figures. Tal said incorrectly counting the number of students who live outside of their parents’ home for the majority of the year is problematic because it doesn’t provide a real sense of supply and demand in the country’s housing market.

Also supportive for housing is the dovish tilt globally from central banks that have helped bring down borrowing costs in recent months. Rates to renew a five-year mortgage aren’t much higher than they were when the mortgages were taken out, according to National Bank research. That means “no payment shock” for the 17.4% of mortgages renewing in 2019.  By Dr. Sherry Cooper.  Chief Economist, Dominion Lending Centres.

Dirty money in the real estate market  

Some startling numbers released last week show how deeply Vancouver real estate is influenced by money laundering.

A report prepared for the British Columbia government says about $7.4 billion was laundered through the province in 2018.  More than two-thirds of that money, about $5 billion, was used to buy real estate.

It is estimated that money laundering activity raised the benchmark price of a home in B.C. by an average of 5%.  Popular and high-priced markets like Victoria and Greater Vancouver likely felt even bigger impacts, but separate numbers were not provided.

The report by Maureen Maloney, a law professor who chairs B.C.’s expert panel on money laundering in real estate, says the problem is even worse in Alberta, Ontario and the Prairies.  It is estimated that more than $40 billion was laundered through Canada last year.

The B.C. government is taking aim at money laundering in real estate with the Land Owner Transparency Act.  The legislation would create a public real estate registry that would clearly show who owns what.  One estimate, from 2016, put one-third of the most expensive properties in the Vancouver region under the ownership of opaque entities such as numbered companies.

The Maloney report goes a step further though, recommending the province implement “unexplained wealth orders”.  These would force people to prove they made purchases with legitimate money or have their property seized.  The orders would not require criminal charges or even any evidence of criminal activity.  They have been roundly condemned by civil rights organizations.  By First National Financial.

BoC: Financial system is stable 

The Bank of Canada is maintaining its optimistic outlook for the country’s economy – but…

The central bank’s latest Financial System Review says two persistent problems remain and two others are on the rise.

High household debt and imbalances in the housing market continue to represent the greatest threats to the financial system, while the increasing chance of a recession and riskier corporate borrowing are adding to concerns.

The household debt-to-income level in Canada closed-out 2018 at nearly 180%.  That is $1.80 owing for every dollar of disposable income.  Canada’s corporate debt-to-income level now stands at 315%.  A growing amount of that borrowing is being done through the U.S. bond market and being paid in U.S. dollars.  Smaller firms and those with lower credit ratings are turning to the syndicated loan market, which could subject them to the changing whims of investors.

Bank of Canada governor Stephen Poloz is more confident about what is happening in housing.

“New measures have curbed borrowing, reduced speculative behaviour in housing markets and made the financial system more resilient,” he said in the report.

“While the fundamentals in the housing sector remain solid overall, and the sector should return to growth later this year, we continue to monitor these vulnerabilities closely.”  By First National Financial. 

Creeping rate cut speculation

In the run up to this week’s rate setting by the Bank of Canada, talk of a coming rate cut is creeping into the forecast.

A recent Reuters poll of 40 economists put the chances of a cut, within the next 12 months, at 40%.  However, the same poll but the chances of a cut, within this year, at about 20%.

Many of the economists cite global trade uncertainties – which are stalling economic growth in Canada and other countries – as the key trigger for a possible 25 basis-point reduction.  Most of the concern centres on the current China – U.S. tensions and the potential for a recession in the States rather than domestic, Canadian, factors.

Realistically, it is unlikely there will be any interest rate movement – down or up – in Canada before 2020.  The BoC is calling for moderate GDP growth through the second half of this year.  As well, the politics surrounding the October federal election will keep the bank on the sidelines.

In a separate Reuters poll, property market gurus predict home prices will remain in the doldrums for the rest of 2019.  They are forecasting a little breeze next year that will push prices up by about 1.7%, which will barely meet the rate of inflation.  The Canadian Real Estate Association is forecasting a 1.6% decline in sales for this year, with a 2.0% increase in 2020.

The market-watchers polled by Reuters point to debt-burdened consumers as the key reason for the slowdown.  By First National Financial. 

Toronto is steadily becoming a sellers’ market – TREB analysis

Toronto is in a gradual trajectory towards being a sellers’ market, with home sales last month shooting up and supply remaining virtually static.

According to latest figures from the Toronto Real Estate Board, the city saw 9,989 home sales through the Board’s MLS System in May. This represented an 18.9% increase from the 15-year low for the month, which was seen last year.

TREB president Garry Bhaura emphasized, however, that last month’s numbers are still markedly below the long-term May average of 10,300, despite the tangible improvements from the glacial pace at the beginning of 2019.

“Sales activity continues to be below the longer-term norm, as potential home buyers come to terms with the OSFI mortgage stress test and the fact that listings continue to be constrained relative to sales,” Bhaura explained.

On the whole, the market is still seeing a positive trend, the Board head assured.

“After a sluggish start to 2019, the second quarter appears to be reflecting a positive shift in consumer sentiment toward ownership housing. Households continue to see ownership housing in the GTA as a quality long-term investment as population growth from immigration remains strong and the regional economy continues to create jobs across diversity of sectors.”

In comparison, listings ticked up by a mere 0.8%, ending up at 19,386 properties for sale. Intensified market competition pushed sales prices up by 3.6% annually, up to an average of $838,540. Said increases in value considerably outpaced the year-over-year gains seen in April (1.9%) and March (0.5%).

TREB warned that while the market can absorb single-digit annual price increases, continued scarcity in housing supply could aggravate price growth to unsustainable levels.

“This potential outcome underpins calls from TREB and other housing industry stakeholders to address roadblocks preventing a more sustainable and diverse supply of housing reaching the market,” the Board’s chief market analyst Jason Mercer stated.

“Many households are not comfortable listing their homes for sale because they feel that there are no housing options available to better meet their needs.”  By Ephraim Vecina.

Economic Highlights

Another Strong Employment Report Signals Rebound In Canadian Economy  

It appears that the Bank of Canada’s optimism that the Canadian economy’s growth will pick up in the third and fourth quarters of this year is well founded. Not only was the employment report very robust for two consecutive months, but the jobless rate has fallen to its lowest level since at least 1976.

Also, Canada’s trade deficit, reported today, hit a six-month low in April, as exports continue to rebound from a recent slump. Consumer spending and business investment are also making a big comeback. Household spending has accelerated, despite concerns over bloated debt loads, assisted by easing rates on loans, substantial jobs gains, stabilizing housing markets and improving financial markets.

The Bank of Canada forecasts that growth will accelerate to an annualized 1.3% in the second quarter–following the meagre 0.4% expansion in Q1–and pick up further in the second half of this year, before accelerating back to above 2% growth by 2020. This comeback begs the question–why were markets expecting a rate cut by the bank in December? That expectation may well change after this morning’s Statistics Canada releases. Of course, one caveat remains, which is the uncertainty surrounding a trade war with China and Mexico. If the trade situation were to worsen, Canada’s economy would undoubtedly be sideswiped.

Canadian employment rose by 27,700 in May, bring the number of jobs created over the past year to a whopping 453,100. The jobless rate plunged to 5.4%, from 5.7% in April, the lowest in data going back to 1976. Economists had been forecasting employment to rise by only 5,000 last month after Canada recorded a record gain of 106,500 in April. The loonie jumped on the news.

The composition of the job gain was particularly heartening, as the rise was all in full-time employment. On the other hand, jobs by those who are self-employed increased by 61,500–the gig economy is alive and well.

The most substantial job gains were in Ontario and BC.

Wage growth continued to be strong in May as pay gains for permanent workers sere steady at 2.6%.

In direct contrast, the US jobs report, also released today, was weaker than expected. US payrolls and wage gains cooled as Trump’s trade war weighed on the economy. US employers added the fewest workers in three months, and wage gains eased, suggesting broader economic weakness and boosting expectations for a Federal Reserve interest-rate cut as President Donald Trump’s trade policies weigh on growth.  

Mortgage Interest Rates

Prime lending rate is 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates have dropped between 10-15 basis points in the last two weeks.  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.

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.

24 Apr

Residential Market Update

General

Posted by: Adriaan Driessen

Industry & Market Highlights 

Rate hike disappears over the horizon

The likelihood of a Bank of Canada interest rate increase appears to be getting pushed further and further beyond the horizon.

The Bank is expected to remain on the sidelines again this week when it makes its scheduled rate announcement on Wednesday.

A recent survey by Reuters suggests economists have had a significant change of heart about the Bank’s plans.  Just last month forecasters were calling for quarter-point increase in the third quarter with another hike next year.  Now the betting is for no change until early 2020.  There is virtually no expectation there will any rate cut before the end of next year.

The findings put the Bank of Canada in line with the U.S. Federal Reserve and other major central banks.  World economies have hit a soft spot largely due to trade uncertainties between China and the United States.  Canada is also being affected by depressed oil prices and a slowdown in the housing market.

Market watchers will be paying close attention to the Monetary Policy Report that comes with this week’s BoC rate setting.  Realtors and mortgage lenders have been pressuring for some loosening of the B20 stress test to allow some life back into the market.  The odds are against the Bank advocating for any easing.  Canadian households are still carrying record high debt loads and there are growing expectations of a recession within the next two years.  By First National Financial. 

New realities have home buyers adjusting

Canadian home buyers continue to accept and adjust to the new realities of the market, but that doesn’t mean they are happy about it.

A home ownership survey conducted earlier this year suggests nearly 40% of homeowners see themselves as being (or having been) “house poor”.  That means they are spending more than 30% of their total income on housing; mortgage, taxes, utilities and maintenance.  More than 90% of the respondents say that kind of money stress could have mental health effects.  While 51% say they would not put themselves in that position, just about all of the other half, 47%, say it would be worth the sacrifice.

This represents an opportunity for brokers who can provide practical advice, tailored to the needs of their clients.  Being available and providing information in real time goes a long way to easing anxiety and tensions for a home buyer.

The survey also shows signs that home buyers may be polarizing between those who believe they can go it alone and those who feel they are going to require financial help.   The number of buyers who feel they can go solo is 32%.  The number planning to get help from family is 28%.  The traditional model of buying a home with a partner or spouse has seen a decline, down to 42% compared to 49% in 2017.

The survey finds a full two-thirds of Canadians believe it is better to own than to rent.  By First National Financial.

Bond yield inversion: the case for calm

Anyone who has been watching knows that bond yields are falling and taking fixed rate mortgages with them.  The recent economic slowdown in both Canada and the U.S. has pushed down yields on five year government bonds on both sides of the border.  Those yields are used as the basis for setting interest rates on fixed mortgages.

An economic indicator known as the yield curve is has been getting a lot of attention lately.  The curve tracks the difference in the yields of short-term and long-term bonds.  Short-term can be as little as three months while long-term is 10 years or more.

Market watchers use the yield curve as a way to judge investor optimism about the future.  Long-term bonds traditionally offer better yields than short-term bonds.  The greater the difference between the short-end and the long-end of the curve, the greater the optimism about the future.

Occasionally though things get turned around and the yield curve “inverts”, with short-term bonds offering better yields than long-term.  Much is being made of this right now because it has happened, in both Canada and the United States, and it is widely viewed as bad news.

In the U.S., bond yield inversions have routinely been followed by a recession, in about a year.  But, like so much of what has happened over the past decade, this time is different.  Economists are nearly unanimous in downplaying the risk.  They point out that the inversion was not big enough and did not last long enough to trigger any alarms.  They also remind us that any possible recession will not happen overnight and is still a year away – plenty of time for action or a correction.  By First National Financial. 

Ottawa to strengthen National Housing Strategy 

The federal government announced Thursday that it is adding more strength to the National Housing Strategy.

The right to adequate housing for all Canadians will be supported by several key initiatives:

  • Requiring the adoption and maintenance of a National Housing Strategy (NHS), that prioritizes the housing needs of the most vulnerable and requires regular reporting to Parliament on progress toward the Strategy’s goals and outcomes.
  • Establishing a National Housing Council with diverse representation, including persons with lived experience of housing need and homelessness. The Council, supported by CMHC, will provide advice to the Minister on questions related to the NHS with the aim of improving housing outcomes.
  • Creating a Federal Housing Advocate, supported by the Canadian Human Rights Commission, to identify systemic housing issues facing individuals and households belonging to vulnerable groups, and provide an annual report to the Minister with recommended measures, which will be tabled in Parliament.

“Through the National Housing Strategy, more middle-class Canadians – and people working hard to join it – will find safe, accessible and affordable homes. Our proposed human rights-based approach to housing, as well as the resource centre, will help strengthen the National Housing Strategy, ensuring that it delivers concrete results for the benefit of all Canadians,” said Jean-Yves Duclos, Minister of Families, Children and Social Development and Minister Responsible for Canada Mortgage and Housing Corporation.

Resource centre

Also announced, is a new resource centre from CMHC which will be managed by the Community Housing Transformation Centre to build a strong and resilient community housing sector.

CHTC will receive $68.6 million for administering the resource centre and two important initiatives under the NHS:

  • A Sector Transformation Fund to provide non-repayable contributions that support building a strong and resilient community housing sector.
  • A Community-Based Tenant Initiative to provide contributions to local organizations whose purpose is to assist people in housing need, support tenants in accessing information on housing options, and encourage better participation in housing decisions that affect them.

“When CMHC held public consultations to develop the Strategy, we heard that Canadians believe everyone deserves to have the dignity of a home. The most promising way to sustain this approach for future generations is to protect it through legislation. Enshrining the need for a National Housing Strategy in law inherently acknowledges the value of a coordinated approach, a shared vision and real accountability. It is a way to bring housing and “rights” closer together. This idea really is central to our thinking at CMHC: housing matters,” said Evan Siddall, President and Chief Executive Officer Canada Mortgage and Housing Corporation.  By Steve Randall.

Ontario Real Estate Association Releases 28 Reform Recommendations 

Levelling the playing field with builders and developers, eliminating unlicensed real estate “consultants” and getting rid of “bully offers” top the list of reforms that the Ontario Real Estate Association (OREA) is recommending to the provincial government.

OREA’s recommendations also include creating an education program for potential real estate professionals that requires more in-class training and specialization in areas like condominiums, industrial and rural or waterfront properties.

OREA says there is currently a two-tier system of consumer protection that exempts builders and developers from having to follow the rules that all real estate salespeople in Ontario must follow when trading in real estate. Real estate auctions, although rare, are also exempt from the protections.

The association is also demanding removal of the grey area in the legislation that allows unlicensed real estate “consultants” to operate in Ontario.

On the topic of bully or pre-emptive offers, “If a home listing includes an offer date, that’s the date on which all offers should be considered; an offer made before that date should not be allowed,” says Karen Cox, OREA president. “This will ensure that all interested buyers of a particular home get a fair shot at making an offer. For sellers, it means they will have a chance to work with their Realtor to carefully and thoughtfully consider all offers without feeling like they are in a pressure cooker.”

The recommendations also suggest eliminating escalation clauses, a provision that a buyer can use to beat competing offers by automatically topping any better offer with a previously stipulated amount.

“A clause that allows a buyer to automatically bump all other offers out of the running in a multiple offer situation makes for a very uneven playing field,” says Cox. “Further, for the escalation clause to kick-in, a Realtor must reveal private financial information such as the highest offer on a home to the buyer using the clause, which violates the Realtor Code of Ethics. Eliminating contradictory rules like this will strengthen consumer confidence in the province’s real estate market.”

In transactions where real estate salespeople are caught breaching the act that regulates real estate in the province, OREA is calling for a process called disgorgement, which would force rule breakers to pay back any income they made by unethical means.

Also among OREA’s recommendations:

  • Provide the option for a more transparent offer process.
  • Give The Real Estate Council of Ontario (RECO) the authority to proactively investigate the worst offenders and kick people who break the rules out of the profession. When an individual’s license is revoked, implement a “cooling off” period of at least two years before the offending individual can reapply for registration. All applicants with violent criminal convictions or fraudulent convictions defined under Section 380 of the Canadian Criminal Code within the last 10 years should be denied the privilege of working in real estate, with no right of appeal, says OREA.
  • RECO should be granted authority to establish administrative monetary penalties, or fines under $2,000, for a range of regulatory violations as an intermediary disciplinary
  • Ontario still does not allow salespeople and brokers from operating their businesses through professional corporations. OREA is calling for fair tax treatment for Realtors.
  • Amend legislation to permit specialty licensing classes for commercial, agricultural, condominium and other forms of real estate.
  • Replace the term “salesperson” with “agent” and replace the term “registrant” with “licensee”.

By REMonline.com

National House Price Index

Canada’s home prices continued their downward trend last month according to a leading measure.

The Teranet-National Composite House Price Index was down 0.3% in March compared to the previous month, marking its first decline for any March in its 20-year history with the exception of the 2009 recession.

The sixth monthly decline meant a cumulative drop of 1.7% across the surveyed markets.

Indexes were down month-over-month in seven of the 11 metropolitan markets surveyed – Ottawa-Gatineau (−1.5%), Victoria (−1.1%), Vancouver (−0.5%), Calgary (−0.5%), Toronto (−0.3%), Winnipeg (−0.3%) and Hamilton (−0.1%). Four markets were up: Halifax (0.8%), Quebec City (0.5%), Edmonton (0.4%) and Montreal (0.1%).

Many of these markets have been showing declining prices for many months; including Calgary for nine (-3.7% cumulative), Vancouver for eight (-4.3%), Victoria for six (-3.5%).

Montreal by contrast has only seen one decline in the past 12 months (with a 5.5% cumulative gain) and Halifax has advanced in each of the past five months (+2%).

The index shows a percentage movement in house prices with indices’ base value of 100 in June 2005. For example, an index value of 130 means that home prices have increased 30% since June 2005.

No collapse

The declining trend is not a sign that house prices are in free fall.

“In Toronto, Canada’s largest real estate market, apartment prices have been up for 17 consecutive months, while prices of other types of dwellings declined only 1.4% over the last 6 months. In Vancouver, the most expensive market, employment growing 2.9% in Q1 on a y/y basis should limit further home price declines,” the report says.

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March Home Sales Rebound From Dismal February Showing

Statistics released Monday by the Canadian Real Estate Association (CREA) show that national home sales edged higher in March following the sharp decline in storm-struck February. Overall, however, housing activity remains considerably below historical norms.

Home sales rose 0.9% nationally while the benchmark price rose 0.8%. While this is an improvement from the very poor showing in February, both sales and prices were down from a year earlier as homebuyers grapple with stricter mortgage rules and provincial actions, especially in British Columbia, to slow the housing market.

There was an even split between the number of markets where sales rose from the previous month and those where they fell. Among Canada’s larger cities, activity improved in Victoria, the Greater Toronto Area (GTA), Oakville-Milton and Ottawa, whereas it declined in Greater Vancouver, Edmonton, Regina, Saskatoon, London and St. Thomas, Sudbury and Quebec City.

On a year-over-year (y/y) basis, sales fell 4.6% nationally to its weakest level for the month since 2013. Existing home sales were also almost 12% below their 10-year average for the month of March (see chart below). Notably, home sales in B.C., Alberta and Saskatchewan were more than a whopping 20% below their 10-year average for the month. The slump is getting deeper in Vancouver, Calgary and Edmonton. All three markets saw further sales and price declines in March. Demand-supply conditions in Vancouver are now the weakest since the 2008-09 recession. By contrast, activity is running well-above average in Quebec and New Brunswick.

There was a slight pick-up in Toronto, yet the 1.8% sales gain recorded last month reversed just a fraction of the outsized 9.0% drop in weather-weakened February. A sixth consecutive decline in new listings in Toronto might have been a restraining factor.

Activity rebounded in Ottawa, while it was flat in Montreal. Both markets, along with Halifax, still boast the tightest demand-supply conditions in Canada. Benchmark prices there continue to track higher at solid rates.

“It will be some time before policy measures announced in the recent Federal Budget designed to help first-time homebuyers take effect,” said Jason Stephen, CREA’s President. “In the meantime, many prospective homebuyers remain sidelined by the mortgage stress-test to varying degrees depending on where they are looking to buy.”

“March results suggest local market trends are largely in a holding pattern,” said Gregory Klump, CREA’s Chief Economist. “While the mortgage stress test has made access to home financing more challenging, the good news is that continuing job growth remains supportive for housing demand and should eventually translate into stronger home sales activity pending a reduction in household indebtedness,” he added.

New Listings

The number of newly listed homes rose 2.1% in March. New supply rose in about two-thirds of all local markets, led by Winnipeg, Regina, Victoria and elsewhere on Vancouver Island. By contrast, new listings declined in the GTA, Ottawa and Halifax-Dartmouth.

With new listings having improved more than sales, the national sales-to-new listings ratio eased to 54.2% from 54.9% in February. This measure of market balance has largely remained close to its long-term average of 53.5% since early 2018.

Based on a comparison of the sales-to-new listings ratio with the long-term average, two-thirds of all local markets were in balanced market territory in March 2019.

There were 5.6 months of inventory on a national basis at the end of March 2019, in line with the February reading and one of the highest levels for the measure in the last three-and-a-half years. Still, it is only slightly above its long-term average of 5.3 months.

Housing market balance varies significantly by region. The number of months of inventory has swollen far above its long-term average in Prairie provinces and Newfoundland & Labrador; as a result, homebuyers there have an ample choice of listings available for purchase. By contrast, the measure remains well below its long-term average in Ontario and the Maritime provinces.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) declined by 0.5% y/y in March 2019. It last posted a y/y decline of similar magnitude in September 2009.

Among benchmark property categories tracked by the index, condo apartment units were the only one to post a y/y price gain in March 2019 (+1.1%), while townhouse/row unit prices were little changed from March 2018 (-0.2%). By comparison, one and two-storey single-family home prices were down by 1.8% and 0.8% y/y respectively.

Trends continue to vary widely among the 18 housing markets tracked by the MLS® HPI. Results remain mixed in British Columbia, with prices down on a y/y basis in Greater Vancouver (-7.7%) and the Fraser Valley (-3.9%). Prices also dipped slightly below year-ago levels in the Okanagan Valley (-0.8%). By contrast, prices rose by 1% in Victoria and by 6.4% elsewhere on Vancouver Island.

Among Greater Golden Horseshoe housing markets tracked by the index, MLS® HPI benchmark home prices were up from year-ago levels in Guelph (+6.6%), the Niagara Region (+6.0%), Hamilton-Burlington (+3.7%) the GTA (+2.6%) and Oakville-Milton (+2.3%). By contrast, home prices in Barrie and District held below year-ago levels (-6.1%).

Across the Prairies, supply remains historically elevated relative to sales and home prices remain below year-ago levels. Benchmark prices were down by 4.9% in Calgary, 4.4% in Edmonton, 4.6% in Regina and 2.7% in Saskatoon. The home pricing environment will likely remain weak in these cities until demand and supply become more balanced.

Home prices rose 7.6% y/y in Ottawa (led by a 10.4% increase in townhouse/row unit prices), 6.3% in Greater Montreal (led by an 8.1% increase in apartment unit prices) and 2.1% in Greater Moncton (led by a 12.9% increase in apartment unit prices). (Table below).

Bottom Line:

The absence of a sharp snapback in activity at the beginning of the all-important spring season in March clearly points to the mortgage stress test, market-cooling measures in BC, economic uncertainty in Alberta and stretched affordability as continuing to exert significant restraint on homebuyer demand. The bad weather’s effect on February sales may have been limited after all. This means that the spring season may not have much upside to offer this year. In coming months, the recent declines in mortgage rates should ease the stress test for some buyers and we will see if first-time home buyers decide to put their plans on hold until more details on the federal government’s First-Time Home Buyer Incentive become available.

It has become increasingly apparent that the taxes levied in Vancouver targetting foreign buyers, empty homes, and high-end properties have sent Vancouver’s luxury housing market reeling. Prices in West Vancouver, one of Canada’s richest neighbourhoods, are down 17% from their 2016 peak. The slowdown is broadening: home sales in March were the weakest since the financial crisis as the benchmark prices fell 8.5% from their record last June. Bloomberg News published the following story today:

“It’s become more costly to both buy and own expensive homes (in Vancouver), particularly for non-resident investors and foreigners. To get a sense of the impact from the municipal, provincial and federal measures, take as a hypothetical example, the province’s most valuable property: the C$73.12 million ($55 million) house belonging to Vancouver-based Lululemon Athletica Inc. founder Chip Wilson. A foreign purchaser of the home who leaves the property empty for much of the year would end up paying as much as C$20.8 million in taxes as follows:

Taxes on purchase:

  • Foreign buyers’ tax of 20%: C$14.6 million surcharge on top of the sales price
  • Property transfer tax rate climbs to 5% on most expensive homes: C$3.7 million

Ownership taxes:

  • Municipal vacancy tax of 1% on assessed value: C$731,200 a year
  • Provincial speculation and vacancy tax, 2% of assessed value: C$1.46 million a year
  • Provincial luxury home tax known as the additional school tax of 0.2% to 0.4% of assessed value: C$278,480 a year

Additional government moves:

Federal rules tightening mortgage lending made it harder to obtain larger mortgages and harder for foreign buyers to borrow

Proposed legislation will expose anonymous Vancouver property owners in a public registry to stymie tax evasion, fraud and money laundering.”

It is not surprising, therefore, that Asian investment–a stalwart part of the Vancouver real estate market for decades–has dropped sharply. “Chinese investors are retreating globally following government restrictions on capital outflows in 2016. In Vancouver, Asian investment dropped off even more last year due in part to a series of new taxes instituted by the government, including a speculation and wealth tax on homes. The province has also proposed a bill to expose hidden landowners — both residential and commercial — and failure to disclose may result in a fine of C$100,000 or 15% of the property’s assessed value, whichever is greater. This is apparently already driving away some investors.” Bloomberg News has reported that at least some Chinese money is being diverted from the Vancouver market to Toronto as shown in the following Bloomberg chart.

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

Realtors & Short Term Rentals

Last week, the Travel Industry Council of Ontario (TICO) and Real Estate Council of Ontario (RECO) confirmed the right of real estate brokerages to transact short-term rental properties.

Another advocacy win for REALTORS®.

Thanks to this ruling, our members will not have to register as travel agents in order to transact vacation properties provided they do it through their brokerage – saving members thousands of dollars in costs and dozens of hours taking courses/passing exams!

Going forward, OREA will be working with Minister Bill Walker and his team to address the issue for the long-term as part of the Province’s updates to REBBA.

Read OREA’s statement here.

Read the RECO bulletin here.

Read the TICO bulletin here.

Mortgage Update - Mortgage Broker London

Economic Highlights
Bank of Canada maintains overnight rate target at 1 ¾ per cent
The Bank of Canada today maintained its target for the overnight rate at 1 ¾ per cent. The Bank Rate is correspondingly 2 per cent and the deposit rate is 1 ½ per cent.
Monetary Policy Report – April 2019
The Bank’s new forecast calls for real economic growth of 1.2 per cent this year, 2.1 per cent next year and 2.0 per cent in 2021.
IMF’s predictions regarding the economy are too optimistic  
The International Monetary Fund’s predictions of the Canadian economy’s prospects for next year are far more optimistic than what is warranted by current figures, Deloitte Canada chief economist Craig Alexander stated.
In its latest outlook, the IMF pulled back its growth estimate for Canada to 1.5% this year, down from the 1.9% forecast in January.
However, Alexander contested the IMF’s prediction of a Canadian recovery of 1.9% in 2020, which will accompany an expected global growth of 3.6% that year.
“They’re too optimistic,” he told the Financial Post. “The reality is that many people’s expectations of what represents good growth are actually too high.”
The economist projected that Canadian GDP will grow by 1.3% in 2019, and then only a miniscule gain to 1.5% in 2020.
An important factor working through the market is the steadily increasing overall debt level, which has hobbled the purchasing power of a significant proportion of consumers, Alexander explained. The latter aspect is especially apparent in the precipitous decline of large retail and real estate purchases.
Moreover, businesses have by and large adapted conservative investment strategies for the time being, mainly due to global turmoil in financial markets. A long-term goal of surviving in this environment should push Canada to make its tax and regulatory regimes conducive to further competition and investment, Alexander stressed.
Earlier this month, Bank of Canada Governor Stephen Poloz assured that Canada’s economic slowdown will ultimately be a fleeting state of affairs. He cited modest economic growth at the beginning of the year, along with a flexible exchange rate, as elements buttressing the nation’s fundamentals.
“There are challenges in the Canadian and global economies that we need to manage, but there are clear signs that Canada is adjusting to the challenges,” Poloz said. “Recent economic data have been generally consistent with our expectation that the period of below-potential growth will prove to be temporary.”  By Ephraim Vecina.
BoC gov’s decision today likely to lead to ‘prolonged pause’
BoC governor Stephen Poloz will most likely set the stage for a lengthy pause on interest rate hikes today, according to analysts surveyed by Bloomberg.
The benchmark overnight rate is expected to stay at 1.75%, amid the more troubling impacts of a sustained economic slowdown aggravated by slower global growth and a cross-Pacific trade war.
Such a decision would be the fourth consecutive hold by the bank.
“The Bank of Canada is still one of the most hawkish central banks globally, and I expect Governor Poloz is going to want to maintain some optionality [to raise rates],” Manulife Asset Management head of macroeconomic strategy Frances Donald said, noting that this stance will give the central bank the tools that it will need to stave off “another borrowing binge.”
“Full capitulation like we’ve seen from the Federal Reserve or the European Central Bank in my view is unlikely,” Donald added.
Earlier this month, Poloz asserted that the Canadian economy will still benefit from the boost that low borrowing costs can provide, considering the current environment of global economic uncertainty.
“That is why we said at our last interest rate announcement in March that the economic outlook continues to warrant a policy interest rate that is below the neutral range to help the economy work through this downshift in growth and keep inflation close to target,” Poloz stated back then, as quoted by BNN Bloomberg.
“There are challenges in the Canadian and global economies that we need to manage, but there are clear signs that Canada is adjusting to the challenges… “Recent economic data have been generally consistent with our expectation that the period of below-potential growth will prove to be temporary.”  By Ephraim Vecina.

Mortgage Interest Rates

No change to Prime lending rate is 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates have dropped between 5-10 basis points in the last two weeks.  Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages somewhat attractive, but still not 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.

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.

10 Apr

RESIDENTIAL  MARKET UPDATE 

General

Posted by: Adriaan Driessen

Industry & Market Highlights 

Federal budget’s housing measures miss the mark

Incentives in the federal budget for first-time homebuyers crippled by soaring housing costs could worsen affordability woes.

“It’s all about increasing demand for housing without doing much to increase supply, and you don’t need to be an economist to know that if you increase demand without increasing supply, you’ll end up with higher house prices, which is the oppose of the intention,” said Sherry Cooper, Dominion Lending Centres’ chief economist.

Rather than encouraging more buyers to compete for inadequate housing inventory, Cooper believes construction inducements would have been more beneficial.

“The government could have done things to increase supply, like changing the rules around zoning and the Greenbelt to open up more land,” she said. “They could even subsidize housing construction or eliminate some of the red tape and other delays in construction. There are other things that could have been done to incentivize the construction of new housing.”

Instead, the federal government introduced the First-Time Home Buyer Incentive, in which the Canada Mortgage and Housing Corporation will provide first-time buyers up to 10% of the purchase price of a new construction home, and 5% of a resale. Beyond that, a crucial question remains unanswered.

“It remains unclear whether the government would take an equity position in the home or whether this would act as an interest-free loan,” said James Laird, president of CanWise Financial. “This is an important distinction because if the government is taking an equity stake in a home, the amount that the homeowner would have to pay would grow as the value of the home increases.”

Added Cooper: “It appears they’re calling it a shared equity mortgage, which means you pay off the loan when you sell the house. It may well be that you pay off 10% or 5% of the sale price as opposed to that of the purchase price, so we don’t know the details yet, but one needs to consider whether you’re also sharing appreciation—the equity you have in your home—when you sell it. Or, for that matter, even a loss.”

One of B-20’s biggest criticisms is that it’s burdened housing markets across the country with a remedy tailored for the Vancouver and Toronto markets. The budget’s First Time Home Buyer Incentive demonstrates the federal government is both aware of the misstep and committed to rectifying it.

“The government has also placed limits on the First-Time Home Buyer Incentive, including a maximum household income of $120,000, and alluded to putting a ceiling on the program’s qualifying home price,” said Laird. “These criteria demonstrate that this program is aimed at Canada’s small- and medium-sized housing markets, as opposed to major urban centres where many households will exceed the maximum income threshold.”

Still, other housing measures in the budget are confounding. The RRSP Home Buyers’ Plan increased the withdrawal amount to $35,000 from $25,000, however, Laird worries it’s short-sighted.

“This program modification will be helpful in getting Canadians into their first home but will also be a burden because the loan has to be repaid within 15 years, including a minimum of one-fifteenth per year,” he said. “This means that, in the years following their home purchase, a homeowner has the additional responsibility of repaying their RRSP.”  By Neil Sharma.

First-Time Home Buyer Incentive reduces qualifying power  

A major item from this week’s federal budget will further reduce, rather than enhance, affordability for first-time homebuyers.

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 further states that “participants’ insured mortgage and the incentive amount cannot be greater than four times the participants’ annual household incomes.”

First-time buyers who think the incentive raises their qualifying power are in for a surprise. Under current qualifying criteria, including the stress test, buyers qualify for homes that are 4.5-4.7% their household income. By using the First-Time Home Buyer Incentive, they would reduce their qualification amount by 15%.

“The total a first-time homebuyer gets between their mortgage and the incentive they receive from the government can’t exceed four times their household income,” said James Laird. “This qualifying criteria is actually stricter than the regular qualifying criteria that exists today. I was surprised the policy itself was launched like this since that section of the budget is called ‘Affordability’ and it actually reduces affordability.”

According to calculations provided, a household with $100,000 of income that puts a 5% down payment on a home, totalling $23,994, qualifies for a $479,888 home. However, with CMHC insurance, that amount declines to $474,129 with a monthly mortgage payment of $2,265.

If the same household participating in the First-Time Home Buyer Incentive uses the maximum purchase price, it qualifies for $404,858. If it uses the minimum down payment of 5% at $20,242, the total mortgage amount becomes $400,000 with a $1,911 monthly mortgage payment.

“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,” continued Laird. “They qualify for less if they use this program.”

That might not be the only problem with the First-Time Home Buyer Incentive. A similar program launched by British Columbia’s Liberal government was axed last March by the NDP after it was revealed that only around 3,000 homebuyers used it—far fewer than the expected 42,000.

“Given the evidence provided through one of the largest provinces in the country trying a program that didn’t work, I’m not sure what the federal government thinks will be different,” said Laird, adding that housing measures in the budget were spare on details.

“I was amazed that one of the key parts of their budget hadn’t been properly thought through and didn’t contain detail. I expect that before this program actually goes live, one, we’ll get more detail, and two, it will be amended to take care of this issue.” 

Lower mortgage rates as bond yield inverts 

The current decline in the bonds market is good news for Canadian fixed-rate mortgage borrowers with rates heading lower.

As the bond market yields invert – as they did Monday in Canada – the cost to banks of borrowing in the market declines, meaning they are able to finance mortgages at a lower rate and pass savings on to customers.

It’s not all good news though because the inverted yield, also seen in US bonds, is often a foreteller of weakening economic conditions and potentially recession.

However, this risk is likely to mean that the BoC will remain highly cautious of increasing interest rates.

An outlook from TD Economics’ Beata Caranci and James Orlando suggests that Canada may need “the real interest rate to remain close to or below zero for a long period” with the deleveraging process only just starting.

There is a growing cohort of investors and analysts that believe the BoC’s next move on rates will be a cut and that is proving good news for variable rate mortgage borrowers too.

Janine White, vice-president of Ratesupermarket.ca told CBC News that rates will climb in the next couple of years but “for the rest of 2019 the prediction is that the variable rate is going to be stable and maybe has a chance of coming down.”  By Steve Randall. 

Residential Market Commentary – Budget Help for House Hunters

The new federal budget certainly got the attention of house hunters, realtors and mortgage professionals.  Unfortunately the announcement turned into a cliff-hanger and we will have to wait for the next episode to find out what is really going to be delivered.

The budget contains two key components aimed at addressing affordability concerns and making it easier for first-time buyers to get a home.

The first is a straight-forward expansion of the current “Home Buyer’s Plan” that allows the use of RRSP money for a down payment.  The maximum amount of the RSP withdrawal has been bumped up from $25,000 to $35,000 – but the 15-year pay-back period is unchanged.

The second component is more complicated and some important details were left unexplained in the budget.  The “First Time Home Buyer Incentive” amounts to an interest-free loan from Canada Mortgage and Housing Corporation.  There are several conditions but it allows CMHC to take an equity stake in a qualifying mortgage.  The money will be paid back to CMHC when the property is sold, or sooner if the owner choses.

The cliff-hanger is: how much money will go back to the housing agency.  Does the homeowner pay back the amount borrowed, or does CMHC get a share of the increased value of the property?  Conversely, if the property value drops does CMHC share in the loss, or is the owner still liable for the full amount of the original loan?  The answers are supposed to come in the fall.

Several prominent economists point out, that neither program actually makes housing more affordable.  They merely add to the options for taking on debt that will have to be repaid.  By some calculations the FTHBI might even decrease the maximum amount a buyer can qualify for.

Mortgage professionals and realtors have their own concerns, particularly about the delay in getting the details delivered.  They worry that leaving the announcement until the fall could hobble the spring buying season as house-hunters wait to find out if they will be able to benefit from the federal programs. By First National Financial.

Economic Highlights

Canadian mortgage rates are falling as bond yields slide lower  

Yield on 5-year government debt has dipped below 1.5%, its lowest level since 2017.  What’s bad news for some is good news for others, and Canadian mortgage-holders are the unexpected beneficiaries of some of the gloom that’s hovering over Canada’s economy.

Fixed mortgage rates have been falling precipitously in recent weeks, as the cost of financing those loans has gotten cheaper. Banks and other lenders get the money that they loan out in mortgages by borrowing it themselves on the bond market, and the yields on five-year bonds have been falling since May 2018.

A five-year Government of Canada bond was yielding just 1.45 per cent on Monday. That’s the first time the figure has been below 1.5 per cent since the summer of 2017.

Last week, the yield curve on long-term lending versus short-term inverted, a rare event that has an uncanny knack for predicting recessions. (For a longer explanation on what an inverted yield curve means, read this.)

Bond yields are heading lower largely because investors think the prospects for the economy are looking dim, so they expect interest rates to start moving lower.

Lower bond yields are generally “not a good sign from an economic standpoint,” says Janine White, vice-president of rate comparison website, Ratesupermarket.ca, “but it’s great for mortgage borrowers.”

That’s because cheaper financing costs are allowing the banks to cut their mortgage rates to try to entice borrowers. 

Royal Bank has since cut that rate two more times, first by 10 basis points on March 1 and then by another 15 basis points on March 13. The bank’s five-year fixed rate is now at 3.49 per cent, and other lenders are indeed following suit.

TD Bank currently has a special five-year fixed rate of 3.49 per cent. Smaller lenders are even lower. Dominion Lending Centres is offering 3.29 per cent locked in for five years, while HSBC Canada has a special five year of 3.24 per cent at the moment.

Variable rates moving lower too

And it’s a similar story on the variable rate side — albeit for different reasons.

Unlike fixed rate mortgages which take their cues from the bond market, variable rate mortgages tend to move in conjunction with whatever the Bank of Canada is doing.

And investors are betting that the central bank will soon be moving its rate down, not up. Investors in financial instruments known as overnight index swaps are pricing in zero chance of a hike this year, but about a one-in-five chance of a cut by July, and up to a 44 per cent chance by September.

White says the variable-rate mortgage market is simply pricing in some of the negative economic indicators of late, including lower inflation and an anemic GDP number that showed Canada’s economy actually shrank to close out 2018.

“There’s an increased probability they will actually cut to try to fuel economic growth,” White said, of her expectations for Canada’s central bank.

One of the biggest shifts that occurred in our quarterly March forecast was the removal of any further interest rate hikes from our outlook.

And economists are predicting the same thing.

“One of the biggest shifts that occurred in our quarterly March forecast was the removal of any further interest rate hikes from our outlook,” TD Bank’s chief economist Beata Caranci said in a note on Monday. “We hit the stop button.”

Variable rates have not just stopped going up, they’ve shifted into reverse and gone down in some cases. Rates below three per cent are now common, both at the big banks and at alternative lenders.

The spring is always a key time in the mortgage markets. That’s because the lion’s share of home purchases happen in those months, so lenders try to compete as much as possible on rates to take as big a bite as they can of that business.

Given that, the sudden trend towards cheaper lending could well stick around for a bit, White says.

“Are we still going to be headed for interest rate increases in the next couple of years? Yes,” she says. “[But] for the rest of 2019 the prediction is that the variable rate is going to be stable and maybe has a chance of coming down.”  By Pete Evans, CBC News.

Mortgage Interest Rates

Prime lending rate is 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates have dropped between 10-15 basis points in the last two week.  Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages somewhat attractive, but still not significant enough spread between the fixed and variable to justify the risk for most.

This edition of the Weekly Rate Minder shows the latest rates available for Canadian mortgages. At Dominion Lending Centres, we work on your behalf to find the best possible mortgage to suit your needs.

Explore mortgage scenarios using helpful calculators on my website: http://www.iMortgageBroker.ca

Other Industry News & Insights

Roundup of the latest mortgage and housing news.

From Mortgage Professionals Canada.

20 Mar

WEEKLY RESIDENTIAL MARKET UPDATE

General

Posted by: Adriaan Driessen

London Mortgage Broker – Market Update

Industry & Market Highlights 

Liberal Government Woes & Housing   

After two years of continuous rule changes reducing home owners purchasing power, creating a massive affordability gap, and stealing the future wealth from first time homeowners now unable to purchase their first home – the new Federal budget includes first-time buyer incentives.

It’s hard not to see this as a public opinion political stunt on the eve of a federal election this fall.  Real Estate and Mortgage Industry professional associations have been telling the liberal government for the past two years they have made a wrong move. To top it off, The Justice Committee met behind closed doors to decide whether Canadians could hear the whole story on the SNC-Lavalin scandal. Unsurprisingly, the Liberals used their majority to cover it up. And now, Justin Trudeau plans to use his pre-election, big deficit budget to get his corruption scandal out of the newspaper headlines.  Don’t you just love honestpoliticians… Oh Canada! See more HERE.

Mortgage Professionals Canada Federal Budget 2019 Housing Market Overview  

Mortgage Professionals Canada welcomes aspects of the housing affordability component of today’s Federal Budget.

The announcement of a new CMHC First-Time Home Buyers Incentive Plan represents a shared equity mortgage program that would give eligible first-time homebuyers the ability to lower their borrowing costs by sharing the cost of buying a home with CMHC.

The incentive would provide funding (equity sharing) of up to five percent of the purchase price of an existing home, or 10 percent of a newly constructed home. No ongoing monthly payments are required. The buyer would repay the incentive, for example at resale. The government has budgeted up to $1.25 billion over the next three years to support this program.

For example, if a borrower purchases a $400,000 home with five per cent down and a five per cent CMHC shared equity mortgage ($20,000), the size of the borrower’s insured mortgage would be reduced from $380,000 to $360,000, helping to lower the borrower’s monthly mortgage bill. This would make it easier for Canadians to buy homes they can afford.

The program limits eligibility to households earning a maximum of $120,000 annually, and lets them borrow no more than four times their annual household income. This limits a home purchase to roughly $505,000. This Incentive Plan will be discussed more fully in the coming days, but it is not expected to begin until fall, 2019. In principle, the increased equity share eligibility for newly constructed homes will help incent new construction and supply across Canada.

Further analysis is needed, however, some aspiring homebuyers, especially at the lower end of the economic ladder, will have greater opportunities to purchase a home with the assistance of this new program.

Also of note is an increase in the eligible RRSP withdrawal amount through the Home Buyers’ Plan (HBP). Previously $25,000, this has been increased to a maximum to $35,000.

The budget included a lengthy defense of the current stress tests but does suggest that adjustments may be made in future. We will continue to discuss this issue with policymakers.

While we did not see immediate movement on the stress tests, and the new Home Buyers Incentive Plan can be seen as an alternate and more targeted response than an insurable 30 year amortization, we are encouraged by the announcements made today.

The forthcoming federal election will provide opportunities to continue the conversations with policymakers and candidates in the coming months. We will continue our ongoing market analysis and maintain our support for a stable housing market for our members and their customers.

Residential Market Commentary – Less Wealth as Debt to Income Grows again

Canadian households are a little poorer and a little deeper in debt.  The latest numbers from Statistics Canada show the country’s national wealth diminished and the infamous debt-to-income ratio increased in the fourth quarter of 2018.

The net worth of the household sector dipped 2.8% in the final three months of last year, to $10.74 billion.  The slowing housing market was a factor but the main cause was a drop in the value of “financial assets”, led by a 7.5% decrease in the price of stocks and other investment fund shares.

The fourth quarter of 2018 was the worst quarter for real estate since Q4-2008.  A 1.4% decline in the value of residential real estate is pegged with leading an overall drop of 1.0% in the value of “non-financial” assets.  In general real estate is the biggest non-financial asset for any household.

Canada’s worrisome household debt-to-disposable-income ratio edged up again at the end of 2018.  It is now 178.5%, or $1.79 in debt for every $1.00 that is left after all of the other bills are paid.  Most of that increase was triggered by mortgage borrowing.  Demand for mortgage loans was up, while other consumer credit borrowing declined.  The Bank of Canada calls the high debt-to-income ratio the biggest domestic threat to the country’s economy.

StatsCan is offering some reassurance.  It points out that the first two months of this year have shown signs of a rebound.  Employment numbers for both January and February were far above expectations.  February also showed an uptick in wage growth the exceeded forecasts. By First National Financial.

Economic Highlights

Canadian Economy Hits a Major Pothole in Q4  

Stats Canada released disappointing figures showing that the economy barely grew in the final quarter of last year. Weakness in the oil sector was expected, but the downturn went well beyond the energy sector and bodes ill for a return to healthy growth this year.

The country’s economy grew by just 0.1% in the fourth quarter, for an annualized growth rate of 0.4%–the weakest performance since the second quarter of 2016, down from an annualized 2% pace in the third quarter and well below economist’s expectation of a 1% annualized gain.

For the year as a whole, real gross domestic product (GDP) grew at a 1.8% pace in 2018, down substantially from the 3% growth recorded in 2017. In comparison, the U.S. economy grew 2.9% last year with Q4 growth at 2.6%.

Canada’s economy was battered by lower export prices for crude oil and crude bitumen walloping Alberta. Housing activity in the province slowed from already weak levels as unsold inventories rose and prices edged downward. As well, business investment dropped sharply in the final three months of the year, and household spending slowed for the second consecutive quarter.

Consumer spending on durable goods, especially motor vehicles, hit the skids as overall household outlays for products and services weakened. Consumption spending grew at the slowest pace in almost four years.

Housing fell by the most in a decade, business investment dropped sharply for a second straight quarter, and domestic demand posted its most significant decline since 2015. Housing investment plummeted, falling at a 3.9% quarterly rate as the housing market continued to soften, with the most substantial decrease in new construction (-5.5% quarterly), followed by renovations (-2.7%) and ownership transfer costs (-2.6%). (*see note below)

Business investment in plant and equipment fell 2.9%, the sharpest drop since the fourth quarter of 2016.

The only thing that kept the nation’s economy from contracting was a build-up in inventories as companies stockpiled goods. Without a doubt, much of the inventory accumulation was unintended, as the slowdown in demand caught businesses by surprise.

Implications for the Bank of Canada

Canada’s economy has been plagued by trade uncertainties, reduced oil demand by the U.S., rising interest rates, and tighter mortgage credit conditions. Consumer and business confidence has declined, and inflation remains muted. Despite a relatively robust labour market, wage growth has slowed. The Bank of Canada is widely expected to stay on the sidelines next week when the Governing Council meets once again on Wednesday. The central bank’s latest forecast, from January, was for annualized growth of 1.3% in the fourth quarter, more than three times stronger than today’s reported pace of 0.4%. The Bank expects growth to decelerate further to 0.8% in the current quarter, before rebounding back to above 2% growth by next year.

The latest data puts the economy’s ability to rebound to more normal levels in question. Monthly data released today show the economy ended the year contracting, with December gross domestic product down 0.1%. Most economists now expect the Bank of Canada will refrain from raising interest rates for the remainder of this year.

*Note:

*Housing investment in the GDP accounts is technically called “Gross fixed capital formation in residential structures”. It includes three major elements:

  • new residential construction;
  • renovations; and
  • ownership transfer costs.

New residential construction is the most significant component. Renovations to existing residential structures are the second largest element of housing investment. Ownership transfer costs include all costs associated with the transfer of a residential asset from one owner to another. These costs are as follows:

  • real estate commissions;
  • land transfer taxes;
  • legal costs (fees paid to notaries, surveyors, experts, etc.); and
  • file review costs (inspection and surveying).

Royal Bank Cautions Against Budget Measures to Increase Millennial Homeownership Demand

A new report hit my inbox yesterday written by Robert Hogue, a senior economist at the Royal Bank urging the federal government to withhold the expected support for millennial home purchases in the March 19th budget. Mr. Hogue writes that “Federal Finance Minister Bill Morneau is reportedly poised to unveil new budget measures to help more Canadian millennials become homeowners. While that generation does face housing-related challenges, especially in some larger and more expensive Canadian cities, we urge him to tread carefully. On the surface, ideas like relaxing the mortgage stress test, extending the maximum amortization period for insured mortgages, or increasing the amount of RRSP take-out for a first home down payment might bring short-term relief to buyers. But they do nothing to address what we believe is the root of Canada’s housing woes: gaps in the mix of housing options in some of Canada’s larger markets. Meanwhile, the measures won’t address the issue of high household debt, and may actually inflate home prices.”

The bank economist takes “issue with the notion that Canada has a home ownership problem in the first place. On average, more than 40% of Canadian households under 35 years of age own their own homes. And the proportion of all Canadian households who own a home is one of the highest among advanced economies. Even Toronto and Vancouver—the least affordable markets in the country—rank near the top of global cities on home ownership and have home ownership rates that are about double cities like Paris and Berlin. And despite a notable decline in the past decade, the ownership rate among younger households (Canada’s millennials) remains not only high historically in Canada but also compared to other countries, including the U.S.”

I urge you to read the report. The data provided in the charts are compelling. The real problem is the dearth of supply of “starter” homes in Canada’s most expensive cities. The measures likely to be introduced in the budget will not address the housing supply gaps and could well further inflate prices. “What millennials in Vancouver and Toronto really need is more inventory of homes they can afford, and a better mix of housing options—be it to own or rent…. At the very least, the collective goal should be to remove barriers (regulatory, administrative or otherwise) inhibiting home developers and builders to respond quickly to the demand for new housing—especially when that demand is rising rapidly.”  By Dr. Sherry Cooper. Chief Economist, Dominion Lending Centres.

 

Mortgage Interest Rates

Prime lending rate is at 3.95%.  The Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates are slowly moving down again.  Some lenders are offering special promotional rates to try and take more market share.  Variable rate discounts are offered by some lenders making adjustable variable rate mortgages somewhat attractive.

Other Industry News & Insights
Roundup of the latest mortgage and housing news. 
From Mortgage Professionals Canada. 
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.
26 Feb

RESIDENTIAL MARKET UPDATE

General

Posted by: Adriaan Driessen

Industry & Market Highlights 
The next move: no move for BoC
The next rate setting by the Bank of Canada will be on March 6th and market watchers are not expecting any change.
Governor Stephen Poloz set a fairly dovish tone in his recent speech to the Chamber of Commerce of Metropolitan Montreal.  Poloz called the bank’s current rate of 1.75%, stimulative because it is still below the rate of inflation, which is running at about 2.0%.  And Poloz said the rate’s climb into the neutral range of 2.5% to 3.5% is “highly uncertain”.
A neutral policy rate is one which neither stimulates nor constrains the economy.
The central bank remains concerned about uncertainties that include the effects of higher interest rates on heavily indebted Canadians, stricter mortgage rules, how business investment proceeds in the current global trade environment and the current unexpected slump in the price of oil.
“We will remain decidedly data-dependent as the domestic and international situations evolve,” Poloz said.
Canada’s improving economy has allowed the BoC to raise rates five times since mid-2017, but there has been no movement since last October.
Many analysts now expect there will be no more than two, quarter-point increases in 2019, and then not until later in the year.  The bank has no compelling economic reasons to move on rates and the next federal budget will be delivered on March 19th, less than two weeks after the next setting date.  That alone would be enough to keep the bank from making any changes.
The campaign for the upcoming federal election, set for October 21st, will also hold the bank in check. By First National Financial.
Residential Market Commentary – The slide continues
We are now through the second January under the tougher, federal B-20 mortgage qualification rules and the housing market continues to cool.
The latest figures posted by the Canadian Real Estate Association show sales dipped 4.0% compared to a year ago, although sales climbed 3.6% month-over-month compared to December. 
The national average price for a home dropped 5.5% compared to January 2018.  It now stands at a little less than $455,000 for all types of housing.  That number is, of course, heavily skewed by the high prices in Toronto and Vancouver.  When those two markets are factored out the average price falls to about $360,000.
CREA says homebuyers are still adapting to the stricter mortgage rules.  The association’s Chief Economist, Gregory Klump, cautions that the B-20 rules and previous tightening will have an effect on economic growth this year.
The number of homes that went on the market in January edged up 1.0% from December.  When than modest increase is combined with the month-over-month rise in sales the ratio of new listings to sales tightened to 56.7%, from 55.3% in December.   CREA says that falls within the long-term average and that more than half of all the markets it monitors are considered balanced. By First National Financial.
Residential Mortgage Quarterly Review – Q4 2018
The pronounced downturn in the country’s real estate market has not been enough to get the Canada Mortgage and Housing Corporation to lower the red flag it has been flying for the past nine quarters.  The housing agency continues to see a high degree of vulnerability in the overall market.
High prices and the usual suspects
Overvaluation remains the key concern in Victoria, Vancouver, Hamilton and Toronto.  The biggest, busiest and most expensive markets in the country continue to dominate the calculations.
The latest figures from the Canadian Real Estate Association show that prices are moderating.  CREA reports a 4.9% decrease in the national average price in December, compared to a year earlier.  The association is forecasting an overall decline of 4.2% for 2018, compared to 2017.  But the association points out that most of that drop is compositional, based on lower sales of high priced homes in Vancouver and Toronto.  When sales are weighted to compensate for the two most expensive markets in the country, the price decline comes in at about 1% for a national average of just under $489,000.
CMHC notes these falling prices, especially in British Columbia and Ontario, and says the markets are falling in line with economic fundamentals.
Policy headwinds
CREA continues to point to government policy and rising interest rates as the biggest drags on the housing market.  The association is projecting an 11% drop in sales for 2018, and in its latest report shows a 2.5% decline between November and December.
As with CMHC, CREA points to the influence of Toronto and Vancouver on the overall numbers.  Slowdowns in these two markets mask on-going improvements in Quebec, led by Montreal, and the Maritimes.
2019 looks a little brighter
Looking ahead to the rest of this year the realtors are a little more optimistic.  CREA sees the national average home price gaining about 1.7% to just shy of $500,000.  It is also forecasting a very modest decline in sales of about 0.5%.
CREA says economic fundamentals such as population, employment and wage growth remain favourable for the housing market.  By First National Financial.
 
LSTAR’s News Release for January 2019 – Home sales off to a strong start 
London and St. Thomas Association of REALTORS® (LSTAR) announced 525 homes* were sold in January, up 17.4% over January 2018. The number of home resales was higher than the 10-year average, with the second highest number of units sold in January since 2010.
“We’re starting to observe signs of movement toward more balance in the marketplace, based on the sales-to-new listings ratio,” said Earl Taylor, 2019 LSTAR President. “In January, the ratio was 60.9% across LSTAR’S jurisdiction. The Canadian Real Estate Association (CREA) says a ratio between 40% and 60% is generally consistent with a balanced market.”
Bucking the trend was St. Thomas, who saw a sales-to-new listing ratio of 80.3% in January, which CREA says represents conditions in the marketplace that favour sellers. St. Thomas also achieved a new high in the last 10 years with its average home sales price.
“In January, average home sales price in St. Thomas was $343,178, up 34% compared to January 2018,” Taylor said. “Going further back, that’s up 68.9% compared to January 2014 and up 86.7% compared to 10 years ago.”
Average home sales price made steady gains in the five major areas of LSTAR’s region. In London, the average sales price was $387,859 up 11.2% from last January, while it was $398,150 in Strathroy, an increase of 41.4% from January 2018.
“Looking at specific geographic areas, London North had an average of $477,615, up 18.1% from the same period last year,” Taylor said. “In London South (which also includes data from the west side of London) had an average sales price of $381,120 in January, up 6.6% compared to January 2018 and up 95.8% compared to just 10 years ago.”
The following chart is based on data taken from the CREA National MLS® Report for December 2018 (the latest CREA statistics available). It provides a snapshot of how average home prices in London and St. Thomas compare to other major Ontario and Canadian centres. By LSTAR.
January Canadian Home Sales Improve
Statistics released today by the Canadian Real Estate Association (CREA) show that national home sales improved in January, climbing 3.6% from December ’18 to January ’19. Last year’s annual sales were the weakest since 2012.
As the chart below shows, national monthly home sales remain below their 10-year moving average and are decidedly lower than in the boom years of 2016 and 2017. Households are still adjusting to the tightened mortgage qualification rules introduced in January 2018. The number of homes trading hands was up from the previous month in half of all local markets, led by Montreal, Ottawa and Winnipeg.
Actual (not seasonally adjusted) sales were down 4% from year-ago levels and posted the weakest January since 2015. Year-over-year (y/y) sales were below the 10-year average for January on a national basis and in British Columbia, Alberta, Saskatchewan, Ontario and Newfoundland & Labrador.
Housing market conditions remain weakest in the Prairie region, and the Lower Mainland of B.C. Housing has been more fragile than the Bank of Canada expected, notwithstanding the tighter mortgage regulations combined with previous actions by provincial governments and CMHC to slow housing activity. The slowdown in housing has contributed meaningfully to the weakness in Canadian economic activity.
New Listings
The number of newly listed homes edged up 1% in January, led by a jump in new supply in Greater Vancouver and Hamilton-Burlington.
With sales up by more than new listings, the national sales-to-new listings ratio tightened to 56.7% compared to 55.3% posted in December. This measure of market balance has remained close to its long-term average of 53.5% for the last year.
Based on a comparison of the sales-to-new listings ratio with the long-term average, more than half of all local markets were in balanced market territory in January 2019.
There were 5.3 months of inventory on a national basis at the end of January 2019, in line with its long-term average. That said, the well-balanced national reading masks significant regional differences. The number of months of inventory has swollen far above its long-term average in Prairie provinces and Newfoundland & Labrador; as a result, homebuyers there have an ample choice of listings available for purchase. By contrast, the measure remains well below its long-term average in Ontario and Prince Edward Island, consistent with seller’s market conditions. In other provinces, sales and inventory are more balanced.
Home Prices
The Aggregate Composite MLS® Home Price Index (MLS® HPI) was up 0.8% y/y in January 2019 – the smallest increase since June 2018.
Following a well-established pattern, condo apartment units recorded the largest y/y price increase in January (+3.3%), followed by townhouse/row units (+1.5%). By comparison, two-storey single-family home prices were little changed (+0.1%) while one-storey single-family home prices edged down (-1.1%).
Trends continue to vary widely among the 17 housing markets tracked by the MLS® HPI. Results were mixed in British Columbia. Prices were down on a y/y basis in Greater Vancouver (-4.5%) and the Fraser Valley (-0.8%). By contrast, prices posted a y/y increase of 4.2% in Victoria and were up 9.3% elsewhere on Vancouver Island.
Among housing markets tracked by the index in the Greater Golden Horseshoe region, MLS® HPI benchmark home prices were up from year-ago levels in Guelph (+6.8%), the Niagara Region (+6.8%), Hamilton-Burlington (+6.4%), Oakville-Milton (+3.3%) and the GTA (+3%). Home prices in Barrie and District remain slightly below year-ago levels (-1.1%).
Among Greater Golden Horseshoe housing markets tracked by the index, MLS® HPI benchmark home prices were up from year-ago levels in Guelph (+7.2%), the Niagara Region (+7%), Hamilton-Burlington (+5%), Oakville-Milton (+3.9%) and the GTA (+2.7%). By contrast, home prices in Barrie and District remain below year-ago levels (-2.7%).
Across the Prairies, supply is historically elevated relative to sales, causing benchmark home prices to remain down from year-ago levels in Calgary (-3.9%), Edmonton (-2.9%), Regina (-3.8%) and Saskatoon (-2%). The home pricing environment will likely remain weak in these cities until elevated supply is reduced.
Home prices rose 7.1% y/y in Ottawa (led by a 9.5% increase in townhouse/row unit prices), 6.3% in Greater Montreal (led by a 9.2% increase in townhouse/row unit prices) and 1% in Greater Moncton (led by a 15.1% increase in townhouse/row unit prices). (see Table 1 below).
Bottom Line
The Bank of Canada meets again on March 6th and it is highly unlikely they will hike interest rates. The Canadian economy has been burdened with a weakened oil sector, reduced trade and a weak housing market. Although job growth has been stronger than expected, wage gains have moderated and inflation pressures are muted.
We are likely in store for a prolonged period of modest housing gains in the Greater Golden Horseshoe, stability or softening in much of British Columbia and further weakening in the Prairies, Alberta, and Newfoundland & Labrador.
Sluggish sales and modestly rising prices nationally are likely in prospect for 2019. While there will still be some significant regional divergences, there is no need for further policy actions to affect demand. Indeed, a growing chorus has been calling for lowering the mortgage qualification rate from the posted five-year fixed rate, currently 5.34%, to closer to the actual conventional rate, about 200 basis points lower.
Economic Highlight
Canadian jobs surge in January as jobless rate rises to 5.8%
January Data From Local Real Estate Boards
In separate releases, the local real estate boards in Canada’s largest housing markets released data this week showing home sales fell sharply in Vancouver, edged upward in Toronto and continued robust in Montreal. Overall, higher interest rates, the mortgage stress test and in the case of Vancouver, measures adopted a year ago by the BC and municipal governments still keep many buyers on the sidelines.
In Vancouver, home sales are in a deep slump, declining 39% year/year in January, though they were up 3% month/month. Sales in January were the weakest for that month since 2009–the depth of the financial crisis. Hardest hurt were sales of luxury properties.
The Vancouver benchmark price fell 4.5%, which was the most significant decline since the recession. The area’s composite benchmark price now has decreased by 7.7% since the cyclical peak in June 2018.
The number of listings rose sharply from a year earlier as sellers rushed to market fearing further price declines. In Vancouver, supply-demand conditions now favour buyers.
Toronto home sales edged higher in January, rising 0.6% year/year. Sales were up 3.4% compared to December 2018. The benchmark price rose 2.7% compared to January 2018. The condo apartment market segment continues to lead the price gains. Toronto area supply-demand conditions remain balanced.
Montreal saw a 15% year/year increase in sales last month. Demand remains robust as the number of active listings fell sharply. Benchmark prices of single-family homes increased 3% year/year, while condos prices rose 2%.
Montreal is now a highly desirable sellers’ market, which is especially true in the single-family home segment in direct contrast to the underperformance of that sector in the GVA and the GTA over the past year.
CMHC Says Overvaluation Decreasing But Housing Still ‘Vulnerable’
The Canada Mortgage and Housing Corporation (CMHC) said this week that the country’s overall real estate market remains ‘vulnerable’ despite an easing in overvaluation in cities like Toronto and Victoria in the third quarter of 2018. CMHC is using old data, as we already have numbers through yearend 2018 and preliminary data for January, all showing that overheating in Toronto and Vancouver has dissipated.
Many Calling for Mortgage Stress Test Review
Local real estate boards, mortgage professionals’ trade groups and some economists are calling for some relief on the stringency of the federal regulator’s mortgage stress test. According to Phil Moore, president of the Real Estate Board of Greater Vancouver, “Today’s market conditions are largely the result of the mortgage stress test that the federal government imposed at the beginning of last year. This measure, coupled with an increase in mortgage rates, took away as much as 25% of purchasing power from many homebuyers trying to enter the market.”
Economists at CIBC and BMO this week highlighted that the tightened qualification requirements for mortgage applicants had slowed activity measurably. While raising the qualification rate by 200 basis points might have made sense eighteen months ago, when housing markets were red hot in Vancouver and Toronto and interest rates were at record lows, we are in a very different place in the economic cycle today.
The Bank of Canada has raised the overnight benchmark policy rate by 75 basis points since the introduction of the new measures, which begs the question of whether 200 basis points is still the right number.
The Office of the Superintendent of Financial Institutions (OSFI) introduced the B20 rules in January 2018 aiming to thwart a credit bubble amid inflated household debt burdens and frothy housing markets. The new rules force people who want a new uninsured mortgage to demonstrate they can manage payments at rates two percentage points above what’s being offered by a lender. The new rules have been very effective in cooling household borrowing and reversing the gains in overheated housing markets.
Indeed, mortgage growth has shrunk to a 17-year low in Canada. Residential mortgage growth was posted at 3.1% in December from a year earlier, the slowest pace since May 2001, and half the growth rate of two years ago.
The slowdown in housing has had a material effect on the economy as a whole. Weakened economic growth has moved the Bank of Canada to the sidelines. While the Bank is now more cautious in jacking up the policy rate to a neutral level, the residential mortgage market is now–in a stress-test perspective–well into restrictive territory. For example, the Bank’s policy rate is at 1.75% (well below the 2.5% rate the BoC considers neutral), while posted mortgage rate used for stress testing is at 5.34%.
This week, OSFI defended the B20 rule suggesting that “The stress test is, quite simply, a safety buffer that ensures a borrower doesn’t stretch their borrowing capacity to its maximum, leaving no room to absorb unforeseen events.”
Canadian Job Market Surges in January
Statistics Canada released its January Labour Force Survey this morning showing employment increases of 66,800 versus expectation of merely a 5,000 job gain. The surge was led by record private-sector hiring and service sector jobs for youth. This is good news for an economy facing considerable headwinds in the oil sector, weakening housing activity, volatile financial markets and falling consumer confidence. If sustained, the strong employment data will ease some concerns about the length and depth of the current soft patch.
Even with the strength in job creation, the unemployment rate jumped 0.2 percentage points to 5.8% as more people looked for work–a sign of strength. This suggests there is more capacity in the economy before inflation pressures begin to mount–a big point for the Bank of Canada. Economic growth is now hovering around 1%, but the Bank of Canada expects it to recover to about a 2% pace in the second half of this year. The central bank will remain on the sidelines until it can verify that a rebound is occurring.
Wage gains remained depressed, a key indicator for the Bank. Average hourly wages were up 2% from a year ago, with pay for permanent employees up 1.8%.
Alberta, which has been flattened by slumping oil prices and production cuts, posted a second consecutive monthly decline in employment. Ontario led the job surge followed by Quebec.
Provincial Unemployment Rates
(% 2019, In Ascending Order)
By Dr. Sherry Cooper.  Chief Economist, Dominion Lending Centres
TREB joins chorus demanding B-20 repeal 
The Toronto Real Estate Board says B-20 needs to be “revisited” because, in addition to stymieing eager and otherwise qualified buyers, it’s harming the Canadian economy.
The CEO of TREB credited the government for taking action on key housing files, but admonished one of its agencies for implementing a stress test that, combined with rising interest rates, is disastrous for both buyers and the economy.
“One area that needs to be revisited is the imposition of the OSFI-mandated two percentage point mortgage stress test,” John DiMichele said in a statement. “While we saw buyers return to the market in the second half of 2018, we have to have an honest discussion on whether or not today’s homebuyers are being stress tested against rates that are realistic. Home sales in the GTA, and Canada more broadly, play a huge role in economic growth, job creation and government revenues each year. Looking through this lens, policymakers need to be aware of unintended consequences the stress test could have on the housing market and broader economy.”
Mortgage growth hit a 17-year nadir last year—the influence of B-20 writ large—but could the problem be an incoherent bureaucracy rather than modified underwriting guidelines?
“The most important thing to consider with the stress test is the intentions are pure—and that’s to protect the financial system and the housing market,” said Elan Weintraub, director of Mortgage Outlet. “The problem comes in the disjointed way in which it was executed because you have three government agencies—the Ontario government implemented the foreign buyer tax, then the Bank of Canada increased interest rates five times, which is disconnected from OSFI implementing the stress test. Everyone wants a strong housing market, but you have three government agencies without integrated policy implementation.”
The mortgage industry is no stranger to policymakers’ whims, but a history of intervention could pave the way to slightly more consumer-friendly adjustments. Frances Hinojosa believes now that the Toronto and Vancouver metropolitan areas have cooled, OSFI could, at the very least, entertain revising B-20.
“There should be some consideration done by the government to make amendments to the B-20 rules that will still uphold prudent lending guidelines,” said the Tribe Financial managing partner. “If there are any amendments to make, I think they may extend amortizations, which would allow millennials and first-time buyers to become homeowners a little earlier so that they can secure their financial futures.”
In fact, Carolyn Rogers, OSFI’s assistant superintendent of the regulation sector, recently told Bloomberg that the government agency might review B-20 if market conditions change. However, she wouldn’t open the door to rescinding the stress test.
“OSFI monitors the environment on a continual basis and when we determine that adjustments to our standards and guidelines are warranted, we make them.”  By Neil Sharma.
Mortgage Interest Rates
Prime lending rate is at 3.95%.  The Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates are on hold.  Some lenders are offering special promotional rates to try and take more market share.  Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages more attractive.
Mortgage Update - Mortgage Broker London

Mortgage Update – Mortgage Broker London

Other Industry News & Insights
Roundup of the latest mortgage and housing news. 
From Mortgage Professionals Canada. 
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.

 

7 Feb

RESIDENTIAL MARKET UPDATE

General

Posted by: Adriaan Driessen

Industry & Market Highlights 
Federal Policy Impacts on Canadian Housing Markets

Housing markets across Canada slowed significantly in 2018 as a result of higher interest rates coupled with mortgage stress tests and other policy changes that have constrained homebuying.

Mortgage Professionals Canada’s latest consumer research report, Annual State of the Residential Mortgage Market in Canada, examines the negative impacts of federal policies on housing markets across the country.

Report author and Mortgage Professionals Canada Chief Economist, Will Dunning, shares how policy changes are disqualifying potential first-time homebuyers and creating considerable pressure on the rental market, which is in turn driving rental prices higher. The reduction of activity in the housing market and extremely low rental vacancy rates have had significant consequences on homebuyers and renters, as well as employment and the overall economy.

The report illustrates that, as President and CEO Paul Taylor has discussed with policymakers, a more reasonable stress test level and lending restriction reforms are now needed to strike a better balance for borrowers and policymakers, improving housing affordability and Canada’s economy.  Read the FULL REPORT HERE.

2018 Q4 Data Now Available

Mortgage Professionals Canada and its Chief Economist Will Dunning produce monthly Housing Market Digests to provide a snapshot and trend analysis of the Canadian – and respective regional – housing markets, content that includes information around housing starts, the resale market, employment trends, interest rates, and more.

Get fourth quarter housing market information for Canada and each province including resale market data, housing stats, employment trends and interests rates from the latest Housing Market Digests here.

As goes housing, so goes the economy

The pundits have been saying for quite some time that the slowdown in Canada’s housing market is going to have a negative effect on the country’s Gross Domestic Product.  That prediction appears to have come true.

For the past several years housing has been one of the few things that has helped keep the economy afloat.  But it is now clear that rising interest rates and restrictive government policies are supressing the housing market.  The Bank of Canada estimates the slowdown in residential housing investment will represent a -0.1% hit to the overall economy.

It is not a big blow, but it crosses the line into negative territory.  Previous projections had residential housing investment continuing to make a positive contribution of +0.1%.

Many market insiders see this as proof that the federal B-20 guidelines are too heavy-handed and are having an unnecessarily harsh effect on home ownership.  They believe the market decline will take an even bigger bite out of GDP and that there is the real threat of a recession.

Now that it has been about 18 months since the BoC started raising its key interest rate, the effects of the increases are being felt in the greater economy.  Some forecasters predict other sectors are going to experience significant slowdowns as debt-laden consumers adjust to the higher cost of paying back their loans.

Housing: An early election issue 

Housing appears to be taking root as a key issue in upcoming federal election.

We got a preview of that when NDP leader Jagmeet Singh hinted at what an NDP government would do as he launched his campaign in a British Columbia by-election.

Singh was light on details but said his Party’s program would get 500,000 affordable housing units built over a 10 year period.  He also called for the elimination of the GST on the construction of affordable housing, and a doubling of the first-time buyer’s tax credit to $1,500.

In the 2015 election the current Liberal government came to power, in part, on a pledge to revamp Canada’s National Housing Strategy and entrench the “right to housing”.  It also promised to help the middle class and those working to join it.  Presumably that included making sure housing would remain affordable for those buyers.

Steps taken by the Liberals since then have fallen short according to critics and the political opposition.  More than a year ago the Liberals unveiled their $40 billion, 10-year strategy for housing and launched ongoing consultations.  But advocates say the government has gone quiet on the issue of the right to housing.  Many feel it is now too late to get legislation passed before Parliament rises in June, ahead of the October election.  The Liberals says they have spent nearly $6 billion building and repairing affordable housing, so far.

Overall housing affordability for the middle class also remains an unresolved concern.  Rising interest rates, taxes, fees and financial stress tests are seen by many as undue impediments to middle class home ownership.

A recent poll by Abacus Data suggests the price of housing is a top issue for millennials, who will outnumber baby boomers when Canadians vote in the fall.

Mortgage Professionals Canada is renewing its call for action to help millennials and other first-time buyers.  The association estimates government stress tests will have affected 200,000 families by the time the October election is held; having either reduced or completely eliminated their home purchasing power.

MPC has put forward a proposal that would make the current B-20 rules less onerous by reducing the stress test interest premium to just 0.75%, from the current 2.0%.

B-20 Guidelines for Private Mortgages  

A number of media outlets picked up a story published by Reuters that opened with:

“Canada is considering subjecting private lenders to the same mortgage stress test rules faced by banks to prevent housing markets from being destabilized by the lenders’ rapid growth, three sources with direct knowledge of the matter said.”

We contacted the Ministry of Finance directly for comment and were advised by a senior ministry official that these reports are unsubstantiated. The Ministry official confirmed that they are not currently considering any regulation of private lending. We were told to advise our membership that this article should not be interpreted as the ministry “sending a signal”.

The Ministry continues to monitor the mortgage marketplace, but at this time, any suggestion of the extension of B-20 Guidelines or equivalent to private lending is unsubstantiated.

Mortgage Professionals Canada continues to be in regular contact with the Ministry and government agencies and we will keep you informed should there be any change in this matter.

Economic Highlights

 

Weekly Bottom Line

Summary of recent economic events and what to expect in the weeks ahead.

U.S. Highlights

•Financial markets extended their gains this week. The re-opening of the U.S. government, the dovish FOMC statement, progress in the U.S.-China trade talks and a strong January payroll report all helped to boost sentiment.

•Global growth concerns persisted this week, but the U.S. economy continued to move along nicely. The labor market added 304k new jobs in January, and the ISM manufacturing index improved after a sharp decline in December.

•Even as domestic economic performance remains solid, global growth slowdown did not go unnoticed by the FOMC. The Committee left the fed funds rate unchanged, and went to great lengths to emphasize patience.

Canadian Highlights

•Canada’s economy contracted 0.1% in November as the energy sector weighed on growth. Real GDP is tracking a modest 1% (annualized) for the fourth quarter as a whole.

•A “patient” Federal Reserve will mean an even more patient Bank of Canada. Canada’s outlook is even cloudier than that stateside, providing numerous reasons for caution from the central bank.

•In a speech this week, Deputy Governor Wilkins noted that the oil shock is coming through not only on the unemployment rate but also the pace of wage growth. Until there is some clarity on the path of global growth, expect the Bank of Canada to remain on the sidelines.

Inflation: Just a blip on the radar  

Inflation has popped back onto the market watcher radar, but it does not appear to be much of a threat.

Statistic Canada’s headline number for December came in at 2%.  That increase was actually held in check by lower prices at the pumps.  With gasoline taken out, headline inflation jumped to 2.5%, year-over-year.  That seems like a significant increase given that November inflation clocked-in at 1.7% and the expectation for December was for the same, 1.7%.

The two big drivers of inflation were a nearly 30% increase in airfares and a 15% jump in the price of fruits and vegetables.  Both of these can be explained as seasonal variations, with the December spike in holiday travel and the usual wintertime reliance on imported produce.

The Bank of Canada is unlikely to be moved to make any interest rate adjustments though.  The average of its three measures of core inflation – which factor out volatile items like food and fuel – put the December rate at 1.9%.  That remains right in the middle of the Bank’s target range and is in line with its projections for 2019.

Of note to mortgage brokers, StatsCan also singled-out a 7.5% increase in mortgage interest rates as a factor in the jump in inflation.  However, that is proving to be something of a moot point as Canada’s big banks appear to be starting a round of cuts to their 5-year fixed rates.

Mortgage Interest Rates

Prime lending rate is 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates are on hold. Some lenders are offering special promotional rates to try and take more market share.  Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages very attractive.

Other Industry News & Insights
Roundup of the latest mortgage and housing news. 
From Mortgage Professionals Canada. 
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.
18 Jan

RESIDENTIAL MARKET UPDATE

General

Posted by: Adriaan Driessen

Industry & Market Highlights 
CMHC
The Bank of Canada left the overnight benchmark policy rate at 1-3/4%, as expected. In another dovish statement, the Bank of Canada acknowledged a slowdown in global economic activity and highlighted that oil prices are roughly 25% lower than what they had assumed in the October Monetary Policy Report (MPR). The lower prices primarily reflected sustained increases in U.S. oil supply and increased worries about global demand, especially in light of a potential U.S.-China trade war (see oil chart below).
The Bank also commented that these worries had been mirrored in bond and stock markets. Credit spreads off Treasuries have widened, and stock markets have sold off around the world (see chart below). Equity prices and bond yields have declined in the face of market unease over global growth. Volatility has risen, and corporate credit spreads have widened sharply. A tightening of corporate credit conditions is particularly evident in the North American energy sector reflecting the decline in oil prices.
Weak oil prices negatively impact the Canadian economic outlook and “transportation constraints and rising production have combined to push up oil inventories in the west and exert even more downward pressure on Canadian benchmark prices. While price differentials have narrowed in recent weeks following announced mandatory production cuts in Alberta, investment in Canada’s oil sector is projected to weaken further.”
The Bank acknowledged that the economy is running close to potential, unemployment is at a 40-year low and trade will likely improve with the weak dollar, the trade deal with Mexico and the U.S. (now dubbed “CUSMA”) and federal tax measures to target investment. Nevertheless, consumer spending and housing investment “have been weaker than expected as housing markets adjust to to municipal and provincial measures, changes to mortgage guidelines, and higher interest rates. Household spending will be dampened further by slow growth in oil-producing provinces.”
The contribution to average annual real economic growth from housing investment has been revised down to -0.1% this year from the +0.1% forecast in October.
The Bank of Canada revised down its forecast for real GDP growth in 2019 to 1.7%–0.4 percentage points lower than the October outlook. According to the Bank, “This will open up a modest amount of excess capacity, primarily in oil-producing regions. Nevertheless, indicators of demand should start to show renewed momentum in early 2019, leading to above-potential growth of 2.1% in 2020.”
Inflation remains close to 2%, the central bank’s target, having fallen to 1.7% in November, due to lower gasoline prices. While low gasoline prices will depress inflation this year, the weak Canadian dollar will have an offsetting impact on the CPI. On balance, the bank sees inflation returning to around 2% by late this year.
Considering all of these factors, the Governing Council continues to judge that the benchmark policy rate will need to rise over time to a neutral range to achieve the inflation target. “The appropriate pace of rate increases will depend on how the outlook evolves, with a particular focus on developments in oil markets, the Canadian housing market, and global trade policy.”
Bottom Line: The Bank of Canada for the first time admits in today’s MPR that the slowdown in the housing market has been more dramatic than the Bank’s staff had expected. The January MPR states, “provincial and municipal housing market policies, the tighter mortgage finance guidelines and higher mortgage rates continue to weigh on housing activity. Slowing of activity in some markets has been associated with less speculative activity. As a result, it is difficult to evaluate the sensitivity of non-speculative demand to the various policy changes. Monthly indicators have signalled that spending on housing likely contracted again in the fourth quarter. Weaker-than-expected housing activity in recent months and staff analysis suggest that the combined effect of tighter mortgage guidelines and higher interest rates has been larger than previously estimated. The Bank will continue to monitor developments in housing markets to assess how construction is adjusting to the shift in demand toward lower-value units.”
The Bank see less urgency to raise interest rates as the economy copes with slumping oil prices and weak housing markets. The five interest rate hikes since mid-2017 are having a more substantial impact on spending than the Bank expected. A short-term pause in rate hikes is now likely. The economy slowed considerably in the fourth quarter of last year, which will continue in the first quarter of this year owing to the decline in oil prices and the Alberta government’s implemented oil production cuts.
While it is unlikely that the Bank is finished its tightening this cycle, expect rates to remain steady until we see solid evidence of a rebound in the oil sector and in housing as interest-rate sensitivity of Canadians is at historical highs.
Real Estate Statistics for December 2018 London St. Thomas  
London and St. Thomas Association of REALTORS® (LSTAR) announced 439 homes* were sold in December, up 2.1% over December 2017 and right on par with the 10-year average. The number of home resales for the year was 9,799, down 13.3% compared to 2017, which set a record year for residential real estate.
“One of the trends that stood out in December was the sales-to-new listings ratio, which was 108.1% across the region,” said Jeff Nethercott, 2018 LSTAR President. “It’s a statistic the Canadian Real Estate Association (CREA) says represents conditions in the marketplace that favour sellers (a ratio between 40% and 60% is generally consistent with a balanced market). In London, the sales-to-new listings ratio was 119.7%, while in St. Thomas it was 100.0%.”
December also saw average home sales price make steady gains in LSTAR’s jurisdiction. In London, the average sales price was $375,782, up 13.4% from last December, while it was $304,079 in St. Thomas, an increase of 0.7% from December 2017.
“Looking at specific areas, London South (which also includes data from the west side of the city) had an average sales price of $421,044 in December, up 16.2% compared to the same period last year and achieving its highest average sales price in the last 10 years,” Nethercott said. “In London North, the average sales price was $426,831, up 16.6% from December 2017, while in London East it was $284,100, up 7.0% compared to last December.”
“Overall, it was a very solid year for home resales in London and St. Thomas,” Nethercott said. “The activity in 2018 performed well above the 10-year average, despite the record low inventory levels seen in the marketplace the entire year. As we kick off 2019, I believe home sales will continue to be strong and be a driving force to the local economy.”
The following chart is based on data taken from the CREA National MLS® Report for November 2018 (the latest CREA statistics available). It provides a snapshot of how average home prices in London and St. Thomas compare to other major Ontario and Canadian centres.
By The London and St. Thomas Association of REALTORS® (LSTAR).
CMHC 
Statistics released by the Canadian Real Estate Association (CREA) show that national home sales dipped for the fourth consecutive month, down 2.5% from November to December, capping the weakest annual sales since 2012. According to last week’s Bank of Canada Monetary Policy Report, housing activity in Canada has fallen by more than the Bank’s economists had expected owing to tighter mortgage-qualification restrictions and rising interest rates.
Monthly declines in home sales since September have fully reversed their summer rally and returned monthly sales to near their lowest level since early 2013.
Transactions declined in about 60% of all local markets in December, led by lower activity in Greater Vancouver, Vancouver Island, Ottawa, London & St. Thomas, and Halifax-Dartmouth, together with a regionally diverse mix of other large and medium-sized urban centres.
On a not seasonally adjusted basis, actual activity was down 19% year-over-year in December 2018 and stood almost 12% below the ten-year average for the month. Sales were down from year-ago levels in three-quarters of all local markets, led overwhelmingly by the Lower Mainland of British Columbia, the Okanagan Region, Calgary, Edmonton, the Greater Toronto Area and Hamilton-Burlington. Sales had been boosted in December 2017 by homebuyers rushing to purchase before the new federal mortgage stress test took effect at the beginnng of this year.
The Bank of Canada forecasts that the housing market will remain soft this year, undermining economic growth as the mortgage stress test has rendered housing unaffordable for many potential homebuyers.
New Listings
The number of newly listed homes remained little changed (+0.2%) from November to December, with declines in close to half of all local markets offset by gains in the remainder.
With sales down and new listings steady in December, the national sales-to-new listings ratio eased to 53.3% compared to 54.8% in November. This measure of market balance has remained close to its long-term average of 53.5% since the beginning of 2018.
Based on a comparison of the sales-to-new listings ratio with the long-term average, about two-thirds of all local markets were in balanced market territory in December 2018.
There were 5.6 months of inventory on a national basis at the end of December 2018. While this remains close to its long-term average of 5.3 months, the number of months of inventory has swollen far above its long-term average in Prairie provinces as well as in Newfoundland & Labrador. By contrast, the measure remains well below its long-term average in Ontario and Prince Edward Island. In other provinces, sales and inventory are more balanced.
Home Prices
The Aggregate Composite MLS® Home Price Index (MLS® HPI) was up 1.6% y/y in December 2018. The increase is smaller but still broadly in line with y/y gains posted since July.
Following a well-established pattern, condo apartment units posted the largest y/y price gains in December (+4.9%), followed by townhouse/row units (+3.1%). By comparison, two-storey single-family homes posted a small increase (+0.4%) while one-storey single-family home prices eased slightly (-0.3%).
Trends continue to vary widely among the 17 housing markets tracked by the MLS® HPI. Results were mixed in British Columbia. Prices are now down on a y/y basis in Greater Vancouver (-2.7%) but remain above year-ago levels in the Fraser Valley (+2.5%). Meanwhile, prices posted a y/y increase of 6.4% in Victoria and rose 11% elsewhere on Vancouver Island.
Among housing markets tracked by the index in the Greater Golden Horseshoe region, MLS® HPI benchmark home prices were up from year-ago levels in Guelph (+6.8%), the Niagara Region (+6.8%), Hamilton-Burlington (+6.4%), Oakville-Milton (+3.3%) and the GTA (+3%). Home prices in Barrie and District remain slightly below year-ago levels (-1.1%).
Across the Prairies where supply is historically elevated relative to sales, benchmark home prices remained below year-ago levels in Calgary (-3.2%), Edmonton (-2%), Regina (-5.2%) and Saskatoon (-1.2%). The home pricing environment is likely to remain weak in these housing markets until elevated supply reflective of the weak oil market is reduced and becomes more balanced in relation to demand.
Home prices rose 6.9% y/y in Ottawa (led by an 8.3% increase in townhouse/row unit prices), 6% in Greater Montreal (driven by a 9.1% increase in townhouse/row unit prices) and 2.5% in Greater Moncton (led by a 12.2% increase in townhouse/row unit prices). (Table 1, unfortunately, CREA did not update the table with December data as of this writing).
Bottom Line
We are likely in store for a prolonged period of modest housing gains in the Greater Golden Horseshoe, stability or softening in British Columbia and further weakening in the Prairies, Alberta, and Newfoundland & Labrador.
Sluggish sales and modestly rising prices nationally are likely in store for 2019. While there will still be some significant regional divergences, there is no need for further policy actions to affect demand.
By Dr. Sherry Cooper.  Chief Economist, Dominion Lending Centres
Economic Highlights

 

Canadian Jobs Market Remains Tight in December, but Wage Growth Disappoints
Statistics Canada released its December Labour Force Survey this morning showing modest job gains and an unemployment rate that remains at a record-low 5.6%. The economy generated 9,300 net new jobs in December, a small increase following a record 94,100 jump in the prior month. However, December’s rise beat economists’ expectations of 5,500 jobs and a jobless rate of 5.7%. All of the tepid increase last month was in part-time and self-employment, a general sign of weakness. Full-time work fell in December for the first time in three months, and wages remained sluggish.
In December, employment rose in Newfoundland and Labrador, while it fell in Alberta, New Brunswick and Prince Edward Island. There was little change in net new jobs in other provinces.
Increases were recorded in manufacturing, transportation and warehousing, as well as in health care and social assistance. There were job losses in wholesale and retail trade, especially in Ontario.
For all of 2018, the economy added 163,300 jobs, all of them full-time, for a 0.9% rise representing a significant slowdown from the pace of job growth in 2017 when the economy was much stronger. In 2017, the economy grew at a 3% rate–the strongest in the G7–compared to only about 2% last year. Employment rose by an out-sized 427,300 in 2017 and has average annualized gains of 225,000 workers since 2010.
With the unemployment rate falling to its lowest level since comparable data collection began in January 1976, it is not surprising that labour shortages are emerging and businesses are having trouble filling job openings. What is surprising is the tepid pace of wage growth. Even with the very tight labour market, December’s wage growth reading was a weak 1.49% annual rate, well below the inflation rate (see chart below). Year-over-year average hourly wage growth for permanent workers was only 1.46%, decelerating steadily since its May peak of 3.9%.
In direct contrast, today’s release of nonfarm payroll data in the U.S. for December showed a stellar 312,000 job gain, and average hourly pay improved 3.2% from a year ago–well above the inflation rate–and up from average wage growth of 2.7% at the end of 2017.
December Housing Reports Show Plummeting Home Sales in 2018 in Toronto and Vancouver
In separate releases, the local real estate boards in Canada’s largest housing markets released data this week showing home sales fell to decade lows in 2018 reflecting rising interest rates and stricter mortgage rules.
Sales in the GTA fell 16% in 2018 while the average price declined 4.3%, the Toronto Real Estate Board reported today. That is the worst year for sales in Canada’s largest city since the financial crisis in 2008. In Vancouver, full-year sales fell 32%, the lowest since 2000 and 25% below the 10-year average. Prices in Vancouver for detached homes in some areas dropped at least 10%.
Sales in both cities dived in the first half of 2018 after the federal government imposed more stringent qualifying rules for mortgages. Vancouver sales continued to suffer even while Toronto began to recover in the second half, as the British Columbia government introduced more measures to deter speculation. The BC government in its 2018 budget increased the foreign buyers’ tax and added a speculation tax, which in addition to rising interest rates dampened sales, especially for more expensive single-family homes.
New listings were down in Toronto last month as homeowners have decided to stay put for now rather than attempting to cash out.  By Dr. Sherry Cooper. Chief Economist, Dominion Lending Centres
Mortgage Interest Rates
Prime lending rate is 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates are on hold.  A few lenders are brining out special promotional lower fixed rates to try and increase market share. Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages very attractive.
Other Industry News & Insights
Roundup of the latest mortgage and housing news. 
From Mortgage Professionals Canada. 
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.
 
Adriaan Driessen
Mortgage Broker 
Dominion Lending Forest City Funding 10671
Cell:     519.777.9374
Fax:      519.518.1081
415 Wharncliffe Road South
London, ON, N6J 2M3
Lori Richards Kovac
Mortgage Agent & Administrator
Dominion Lending Forest City Funding 10671
Cell:     519.852.7116
Fax:      519.518.1081
415 Wharncliffe Road South
London, ON, N6J 2M3
Adriaan Driessen
Sales Representative & Senior Partner
PC275 Realty Brokerage
Cell:     519.777.9374
Fax:      519.518.1081
415 Wharncliffe Road South
London, ON, N6J 2M3

 

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