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 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.

• Poloz Poised to Put Bank of Canada on Pause: Decision Day Guide (Bloomberg)
• Household Debt Leaves Canadians ‘Maxed Out’ With No Plan For Repayment: Survey (Huffington Post)
• Vancouver home prices are going to fall further this year (Livabl)
• Canada needs to crack down on real estate money laundering (Livabl)
• What $250,000 will buy in four Canadian cities (Maclean’s)
• London Real Estate Market Full Steam Ahead (Point2Homes)
• Realtors oppose mandatory sharing of offers among competing home buyers (The Star)
• What Does the Future Hold for the Mortgage Stress Test? (Point2Homes)
• ‘Disappointing’ Canadian housing market is set to pick up this year (Livabl)
• Canada’s housing market remains sluggish despite March rebound (BNN Bloomberg)
• Average house price fell 1.8 per cent to $481,745, CREA says (CTV)
• Here’s how the Canadian government could be more generous to struggling first-time homebuyers (Livabl)
• Why house prices are unlikely to rise any time soon (Maclean’s)
• Canada’s Cannabis Industry Pushing Up House Prices In Certain Places: Report (Huffington Post)
• No, a weak stretch doesn’t mean Canada’s housing market is collapsing (Livabl)
• Despite price drop, Toronto slated to come back hard (Canadian Real Estate Wealth)
• Ontario Budget 2019 – Industry Overview (Mortgage Professionals Canada participates in exclusive lockup)
• Liberals Use Budget Bill To Legislate ‘Right To Housing’ In Canada (Huffington Post)
• Canadian developers could be building more new homes right now. Here’s why they’re waiting (Livabl)
• Edmonton remains a top affordability hub (Canadian Real Estate Wealth)
• This is what ‘affordable’ looks like across Canada’s housing market (Daily Hive)
• Ottawa is actually Canada’s hottest housing market in new global ranking (Livabl)
• Cannabis production is pushing home prices higher in Canadian pot-boom towns (Livabl)
• These are the best times of the year to buy and sell a home (Livabl)
• Baby Boomers’ Impact on Canadian Real Estate (Canadian Real Estate Wealth)
• Real Estate: What $500,000 will buy in five Canadian cities (Maclean’s)
• Home prices have been rising in this Canadian market for 49 straight months (Livabl)
• Toronto’s 2-bedroom condo rent just climbed to nearly $3,000 a month (Livabl)
• Montreal price growth continues outpacing other top markets (Canadian Real Estate Wealth)
• Majority of Canadians Say It’s Better to Own than Rent (Canadian Mortgage Trends)
• Pace of Canadian housing starts up in March on seasonally adjusted basis: CMHC (CTV)
• Canadian homebuilding rebounds from an early deep freeze (The Star)
• Canadian housing demand is one thing Millennials can’t be blamed for killing (Livabl)
• Chinese Real-Estate Investors Wary of Vancouver Head to Toronto (Bloomberg)
• Update on CMHC’s First-Time Home Buyers Incentive (Canadian Mortgage Trends)
• Majority of Canadians believe it’s better to own than to rent a home, poll finds (Toronto Star)
• How do you stop developers from cancelling condos? Buyers, lawyers and builders weigh in (Toronto Star)
• Canada’s Risky Housing Market Has Traded Places With The U.S., IMF Says (Huffington Post)
• Feds defend new homebuyer program after fierce criticism that it won’t help anyone in Toronto (Livabl)
• Canadian incomes aren’t growing fast enough, and that’s a problem for Canada’s housing market (Livabl)
• Growing pains only just begin for Toronto (Canadian Real Estate Wealth)
• Survey reveals housing market off to a sluggish start (Canadian Real Estate Wealth)

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

Industry & Market Highlights 

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.

• Looking for a deal on a new home? Try these Canadian cities in 2019 (Livabl)
• More than 150,000 speculation tax declarations still outstanding (Vancouver Sun)
• A first-time buyer’s guide to purchasing a home as a new immigrant to Canada (Livabl)
• For North America’s Most Affordable Homes, Move to Calgary (Bloomberg)
• Toronto, Vancouver housing affordability in ‘crisis’ even amid national relief: RBC (BNN Bloomberg)
• Falling home prices not only in Vancouver, but also in markets around world (Vancouver Sun)
• Toronto’s condo boom is so big, the city has more cranes than New York, LA and Chicago combined (Livabl)
• Vancouver Condos See Biggest Decline In Prices And Sales Since 2009 (Better Dwelling)
• Toronto Condo Prices Reach All-Time High, Sales Drop To 6 Year Low (Better Dwelling)
• Signs point to lower Canadian mortgage rates this year (Livabl)
• Feds’ budget plan won’t do much for first-time homebuyers in Canada’s hottest markets (Ottawa Citizen)
• The Continued Cooling of Real Estate Markets across Canada (Point2 Homes)
• More Non-Resident Home Buyers in Canada, New Data Shows (Point2 Homes)
• The Canadian housing market will be busy this spring — just not for realtors (Livabl)
• Liberals’ Plan To Help Homebuyers Will Mean ‘Turbulence’ In Market, And Won’t Help Pricey Cities: Analysts (Huffington Post)
• This chart shows how far BC’s housing market has fallen since tougher mortgage rules were introduced (Livabl)
• 2019 Canadian budget fails to give first-time homebuyers the help they need, Toronto realtors say (Livabl)
• Canadian mortgage rates are falling as bond yields slide lower (CBC)
• 3 ways to change the mortgage stress test that will actually help Canadian homebuyers (Livabl) – featuring interview with Paul Taylor
• Mortgage Industry Reacts to Liberal Budget (Canadian Mortgage Trends)
• Trudeau’s New Housing Measures Could Mute Home Sales Until Fall (Bloomberg)
• Housing Is a Magnet for Money Launderers in Toronto: Study (Bloomberg)
• Budget’s real estate top-up could push up the price of cheaper homes: Don Pittis (CBC)
• Will federal plans to help first-time buyers make any difference in Canada’s ultra-expensive housing markets? (Livabl)
• Where are Canada’s best buyer’s markets right now? Check out this ‘Housing market scorecard’ (Livabl)
• How powerful lobbyists built big-ticket budget items (Macleans)
•  Trudeau’s new housing measures could mute home sales until fall: RBC (BNN Bloomberg)
• Budget’s real estate top-up could push up the price of cheaper homes: Don Pittis (CBC)
• Shared equity mortgages, like those in federal budget, no cure-all for housing affordability woes (Vancouver Sun)
• What the 2019 federal budget means for you (CTV News)

• After aggressive 2018, Bank of Canada will take it easy on interest rate hikes this year (Livabl)
• Near-record B.C. housing starts expected to fall, prompting debate over supply (Vancouver Sun)
• ‘Lined up around the block’: Renters struggle to find ‘decent’ spaces (CBC)
• Bank of Canada’s Poloz says rate hike path ‘highly uncertain’ (BNN Bloomberg)
• B.C., Ontario foreign buyers’ tax fuels Montreal luxury sales surge: Royal LePage (BNN Bloomberg)
• Canada’s housing market set for years of subdued price rises: Reuters poll (Reuters)
• Baby Boomer demand for luxury condos in Toronto and Montreal is lifting prices even higher (Livabl)
• Canadian real estate market outlook 2019: Stable but struggling (Maclean’s)

 

 

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

Industry & Market Highlights 

The short break in interest rate increases may be over

Over the past few months rates have held steady and gave home owners a reprieve in the increasing mortgage interest rate market.  After the official announcement of a trilateral trade agreement with Canada, the U.S. and Mexico, and the US Federal Reserve Bank raising interest Rates – most Economists agree that the Bank of Canada is next to make a rate announcement, and we may start to see some slow, but steady interest rate increases again. Of course no one can say for sure, but the signs seem to point in that direction. If you’re feeling nervous about rates increasing contact your broker to review your options to look out for your best interest.

If you are currently in a variable rate mortgage with a lower risk tolerance, this may be the time to consider locking in.  If you have a high risk tolerance and are used to the ebb and flow of markets, it’s business as usual.

Increases in the U.S. and the potential ripple effect

Market watchers who are forecasting another Bank of Canada rate increase next month have been handed more backing for their prediction.

Last week the U.S. Federal Reserve pushed up its policy rate for the eighth time since December of 2015.  The Fed increased its benchmark rate by 25 basis points (a quarter of a percent) to a range of 2% to 2.25%, the same level it was at in April 2008, before the height of the global financial crisis.  The U.S. central bank also made it clear it intends to continue along that path.

The Fed says it expects one more increase this year and is projecting at least three hikes in 2019.  It has also changed some of the language in the accompanying statement, eliminating the phrase “the stance of monetary policy remains accommodative.”

The effects of U.S. rate increases routinely ripple across the border influencing bond rates and the value of the Canadian dollar.  A declining loonie could trigger further inflation, as the cost of imported goods increase.

The Bank of Canada is already facing an inflation rate that is running on the high side of its 1% to 3% target range.  Unemployment is at generationally low levels in Canada, and working people exercising their spending power can also fuel inflation.

Given these pressures and the BoC’s stated desire to normalize interest rates another quarter-point increase seems very likely on October 24th.  By First National Financial.

SOLD Date Coming to Realtor.ca

CREA’s Board of Directors has voted to add sold and historical data to the property listings on Realtor.ca without the need for a login.

In a message to real estate boards across the country, CREA says the move comes “in order to meet consumer demand and at the request of Realtors and boards.”

It says, “In addition to responding to requests from members, this will ensure we continue to offer leading edge services on the best real estate website in Canada.”

A Competition Tribunal decision in July 2016 found that by not including sold and other data in its VOW feed to members, TREB had engaged in anti-competitive acts. An appeal court upheld the decision and on Aug. 23 of this year, the Supreme Court of Canada announced that it would not hear TREB’s appeal. CREA supported TREB at the tribunal and had intervenor status in the proceedings.

TREB is now supplying the disputed data to its member VOWs.

CREA media relations officer Pierre Leduc says that before the sold data can be displayed on Realtor.ca, each real estate board must request that the information be added. CREA will then work with the boards, the provincial associations and the regulators to ensure that it complies with all laws and regulations.

“We’ll have to check with the boards to see what historic sold data they have access to, and how far back that data will go,” says Leduc.

Only historic sold prices will be posted and not pending solds, he says. Pending solds were part of the Competition Tribunal order for VOWs, but consumers and Realtors are concerned about privacy issues on deals that have yet to close.

Leduc says CREA hopes to have the sold data rolled out on Realtor.ca as soon as possible.  By REMonline.com

CREA: National home sales post modest sales gain

Growth in Canada’s housing market in August was modest as the effects of the mortgage stress test continues, although is beginning to fade.

The latest sales data and forecast from the Canadian Real Estate Association released Monday shows a small rise for sales in August, a 0.9% increase month-over-month.

Actual (not seasonally-adjusted) activity was down 3.8% year-over-year while prices nationally increased 1% from a year earlier. Sales activity is weaker than most months over the last 4 years.

“The new stress-test on mortgage applicants implemented earlier this year continues to weigh on national home sales,” said CREA President Barb Sukkau. “The degree to which the stress-test continues to sideline home buyers varies depending on location, housing type and price range.”

There were 5.2 months of inventory on a national basis at the end of August 2018, right in line with the long-term average for the measure.

The Aggregate Composite MLS® Home Price Index (MLS® HPI) was up 2.5% y-o-y in August 2018.

The largest y-o-y price gains in August were for apartments (+9.5%), followed by townhouse/row units (+4.3%). But prices for one-storey and two-storey single family homes were little changed on a y-o-y basis in August (+0.4% and -0.4% respectively).

Where the gains were

Around half of all local markets recorded an increase in sales from July to August, led again by the GTA.

TD Economics’ analysis of the data shows the largest gains were in Toronto (+2.2%), Montreal (+2.8%) and Edmonton (+5.4%) while sales were lower in Halifax (-8.2%), London (-1.2%) and Winnipeg (-1.0%).

Activity picked up in several markets in B.C. including 2.9% in Vancouver – the first gain this year – along with the Fraser Valley (+0.6%), Okanagan-Mainline (+1.7%), and Victoria (+2.7%).

“Our view is that sales and prices will continue to grow, but that rising borrowing costs will restrain the pace of expansion. This is particularly true for more expensive markets in Ontario and B.C. where affordability pressures are acute,” TD economist Rishi Sondhi says.

Activity had fallen too far

In his assessment of the CREA data, RBC Economics’ senior economist Robert Hogue says that the figures show that the recent drop in activity was part of the market finding its normal level following B-20.

“The fact that home resales snapped back by 8.1% in the four months since reaching a seven-year low in April tells us that activity had fallen too far. This is typical following a major policy change that pulled some activity forward,” he said.

He added that the latest figures reflect a new, slower phase of recovery.  By Steve Randall.

Decreasing certainty for an increase in rates

Market watchers have now fixed their gaze on October 24th as the most likely date for the next rate move by the Bank of Canada.  As of the setting last week, that saw no change, the betting was about 75% in favour of a hike in October, but that certainty seems to be slipping.

The latest employment numbers from Statistics Canada will likely have the Bank carefully considering any move toward an increase.  The August unemployment rate popped-up 0.2 of a percentage point to 6.0%, on a net loss of 51,600 jobs in August.

The August jobs report is sending mixed messages though.  Most of the losses came in part-time positions, which fell by 92,000.  Full-time jobs actually increased by 40,400.  Year-over-year employment in Canada is up 0.9%.  While 155,000 part-time positions have disappeared, there has been a gain of 326,000 full-time jobs for a net gain of 171,000 positions.

Another factor that could hold back an October rate increase is a softening of wage growth.  The rate of increase in hourly pay slowed to 2.9% in August, down from 3.2% – year-over-year – in July and a 3.6% in June.

The bigger issue, though, remains the NAFTA re-negotiations.  Uncertainty about the outcome of the talks is a drag on the Canadian economy.  It is hampering the Bank of Canada’s efforts to move economic growth away from debt-fueled consumer spending to business investment and export growth.

The Bank continues to use words like cautious and gradual to describe its approach and with inflation remaining well inside the Bank’s target range there is no urgency for a rate increase.  By First National Financial.

Canadian Mortgage Credit Growth Grinds To A Halt, Worst Growth In 18 Years

The Canadian real estate market is slowing down, and it’s hitting mortgages. Bank of Canada (BoC) numbers show mortgage credit grinded to a halt in July. The annual rate of mortgage growth fell to the lowest level in nearly 18 years, and is set up to go lower.

Canadians Owe Over $1.52 Trillion In Mortgage Debt

Canadians set a new dollar record for outstanding mortgage credit at institutional lenders. The outstanding balance stood at $1.52 trillion in July, up $4.95 billion from the month before. Households sent the total $54.22 billion higher than the same time last year. On the upside, lenders are primed to receive a whole lot of interest payments. On the other hand, if we look closely – we see the rate of growth is actually shrinking very quickly.

Outstanding Mortgage Credit

The outstanding balance of Canadian mortgage credit.

Mortgage Debt (in millions)

 

Source: Bank of Canada, Better Dwelling.

Canadian Mortgage Credit Falls To Lowest Growth Since July 2001

The growth of mortgage credit fell to its lowest levels in almost two decades. The $54.22 billion increase from last year comes in at just 3.7% growth. That still sounds pretty decent, until you realize it’s only 0.68% in real terms. The annual pace of growth is now the lowest it’s been since July 2001. For historical context, a then new artist named Shaggy topped the charts with It Wasn’t Me when mortgage growth was last this low. Of course most of you have no idea who he is, so ask your mom for the best explanation. Then tell her mortgage levels fell to Shaggy-era levels of growth, and email us her take.

Canadian Outstanding Mortgage Credit Change

The 12 month percent change, and 3 month annualized change, of outstanding mortgage credit. 

Source: Bank of Canada, Better Dwelling.

Mortgage Growth Likely To Head Lower

Looking at the short-term trend, these numbers will likely come in lower for at least a few more months. Annualizing growth over the past 3 months, we get just 1.7% – lower than inflation. This means if the annual growth rate came in at the same pace as the past 3 months, the rate would fall to 1.7%. Until this number rises above the annual pace for a while, expect the rate to continue to fall.

Canada is coming off of record sales years, and interest rates are quickly climbing. That’s dropping demand for new loans, and tightening credit requirements. It shouldn’t be a huge surprise that mortgage growth is on the decline, and likely to slide further.  By betterdwelling.com

Reviewing the Stress Test and B-20 Lending rules hindering the Canadian Housing Market

Back in 2013, the B-20 rules as underwriting guidelines for residential mortgages came into effect. The rules were put in place as a direct response to the financial issues in the United States caused by “poor mortgage lending practices” (mortgagebrokernews.ca).

 

Now, 5 years after these rules have come into effect, Canada’s housing market is said to be facing affordability issues. It is widely believed that it is become increasingly more difficult for first time home buyers to purchase a property. To deal with the affordability issues and the stress test, some young people are borrowing from parents to help with a down payment.

 

Recently, it has been reported that there is a decrease in mortgage originations from the Millennial and Generation Z cohort and a rise amongst the Pre-War Generation (those between the ages of 73-93). Findings have shown an increase of mortgage originations of 63% in the last quarter from the Pre-War Generation (theglobeandmail.com).

 

This begs the questions: are those who are trying to get into the housing market seeking help from their grandparents and asking them to take out mortgages for their grandchildren? Is the current generation asking and receiving help from their aging grandparents? If so, what else are they willing to do to achieve their goal of home ownership?

 

The Conservative party as made a motion to the House of Commons to institute a subcommittee to review the stress test and B-20 rules to determine if it is helping or hindering the Canadian housing market.  By CMBA, Canadian Mortgage Brokers Association.

Economic Highlights

Canadian Jobs Plunge in August As Unemployment Rises

In a real shocker, Statistics Canada announced this morning that employment dropped by 51,600, retracing most of the 54,100 gain in July. Economists had been expecting a much stronger number, but the Labour Force Survey is notoriously volatile, and job gains continue to average 14,000 per month over the past year. Full-time employment growth has run at about twice the pace at an average monthly increase of 27,000. Labour markets remain very tight across the country.

The unemployment rate returned to its June level of 6.0%, ticking up from 5.8% in July. July’s jobless figure matched a more than four-decade klow. At 6.0%, the unemployment rate is 0.2 percentage points below the level one year ago.

All of the job loss last month was in part-time work, down 92,000, while full-time employment rose by 40,400. The strength in full-time jobs is a sign that the labour market is stronger than the headline numbers for August suggest.

On a year-over-year basis, employment grew by 172,000 or 0.9%. Full-time employment increased (+326,000 or +2.2%), while the number of people working part-time declined (-154,000 or -4.3%). Over the same period, total hours worked were up 1.6%.

Statistics Canada commented that monthly shifts in part-time employment could result from movements between part-time and full-time work, the flux of younger and older workers in and out of the labour force, changes in employment in industries where part-time work is relatively common, or deviations from typical seasonal patterns.

By industry, the decline was broadly based and included a loss of 16,400 jobs in construction and 22,100 in the professional services sector. The number of people working in wholesale and retail trade declined by 20,000, driven by Quebec and Ontario.

Job losses were huge in Ontario as employment increased in Alberta and Manitoba. Employment was little changed in the other provinces.

After two consecutive monthly increases, employment in Ontario fell by 80,000 in August, which was the province’s most significant job loss since 2009. All of the decline was in part-time work. On a year-over-year basis, Ontario employment increased by 79,000 (+1.1%). The Ontario unemployment rate rose 0.3 percentage points in August, to 5.7% (see table below).

In Ontario, full-time employment held steady compared with the previous month, with year-over-year gains totalling 172,000 (+3.0%). Part-time jobs fell by 80,000 in August, following a roughly equivalent rise in July. In the 12 months to August, part-time work decreased by 93,000 (-6.7%).

Employment in Alberta rose by 16,000, and the unemployment rate remained at 6.7% as more people participated in the labour market. Compared with August 2017, employment grew by 53,000 (+2.3%), mostly in full-time work.

In Manitoba, employment rose by 2,600, driven by gains in part-time work, and the unemployment rate was 5.8%. On a year-over-year basis, employment in the province was unchanged, while the unemployment rate increased 0.8 percentage points as more people looked for work.

In British Columbia, employment edged up and the unemployment rate increased 0.3 percentage points to 5.3% as more people searched for work. Compared with a year earlier, employment was virtually unchanged.

Wage gains decelerated to their lowest level this year as average hourly earnings were up 2.9% y/y, the slowest pace since December.

There is no real urgency for the Bank of Canada to hike interest rates as the economy shows little risk of overheating. So far in 2018, the economy has shed 14,600 jobs, but the number masks a 97,300 gain in full-time work. Part-time employment is down by 111,900 this year.

The economy is running at or near full-employment as job vacancies continue to mount. If a NAFTA agreement comes to fruition, it is still likely the Bank of Canada will raise interest rates once again at the policy meeting in October. The Bank of Canada guided in that direction yesterday when Senior Deputy Governor Carolyn Wilkins said the central bank’s top officials debated this week whether to accelerate the pace of potential interest rate hikes, before finally choosing to stick to their current “gradual” path.

By Dr. Sherry Cooper

Chief Economist, Dominion Lending Centres.

Mortgage Interest Rates

Prime lending rate is 3.7%.  Bank of Canada Benchmark Qualifying rate for mortgage approval is at 5.34%.  Fixed rates are starting to creep up again.  Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages very attractive.

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

The benefits of flexibility – Interest Only Mortgage

Merix financial recently launched a brand-new product, the Interest-Only Flex Mortgage, geared toward homeowners and investors looking to purchase or refinance up to 80% of the value of the home and take advantage of lower monthly payments during the term. The product offers clients an interest-only payment or a combination of an interest-only payment and an amortizing (principal and interest) payment with either fixed and ARM rates, giving clients choice and flexibility with their finances.

Boris Bozic, founder and CEO of MERIX Financial, sat down with CMP to share more about this significant opportunity for brokers and homeowners.

CMP: Why did MERIX Financial develop this product?

Boris Bozic: We felt there was a need for it. Affordability of homes is an issue, and cash flow is increasingly important. With the increased cost of carrying homes and interest rates on the rise, there was an opportunity to innovate and offer something new to the industry.

CMP: How do you see this meeting the needs of mortgage brokers and their clients?

BB: Brokers will have choice – or, at the very least, have more choice. It’s no longer required of them to just support one of the Big Five, and they can offer solutions where they may not have been able to previously.

For borrowers, it’s primarily about providing additional cash flow for those with other liabilities – for example, student loans. The monthly mortgage payments are comparatively lower than they would typically pay; therefore, they can dedicate those excess funds to other outstanding debts. It also speaks to borrowers whose circumstances may change over the next few years – for example, for maternity/paternity leaves, etc.

CMP: What other types of clients would this mortgage be suitable for?

BB: Well, in my estimation, it’s suitable to all borrowers. However, it could be for clients with seasonal work who would like to pay down their mortgage using the 20% repayment feature on a schedule that fits their irregular cash flow; clients who are living in markets with high real estate prices who want to purchase a home in their desired neighbourhood with manageable monthly payments; investors looking to improve wealth over the long-term, who can put that extra cash to better use through investment opportunities, rather than repaying the principal on a mortgage; clients looking for lower monthly payments to save for home renovations to improve property value; and property investors who own multiple rentals and want to keep mortgage expenses low.

I don’t want to pigeonhole this product – the possibilities really are endless. Adaptations are being provided by our customers, too; they are utilizing this product in ways and in scenarios that we didn’t even contemplate.

CMP: What are the main advantages of the Interest-Only Flex?

BB: The biggest one, of course, would be the monthly payments. That’s why someone would want this over a traditional mortgage – the cash flow. It’s extremely customizable and flexible to be exactly what you need in your financial situation.

Other advantages would be things like LTV up to 80% – maximum 65% in interest-only, and the remaining 15% can be in an amortizing loan. It also applies to all mortgages: purchases, refinances, switches and rentals.

CMP: How do you position this mortgage’s higher interest rate to brokers and borrowers?

BB: That is a challenge. Both brokers and borrowers are hardwired to look at interest rate only. This is not an interest rate mortgage. This is a cash flow mortgage. Therefore, sometime is required to educate the broker base as well as the borrower – but numbers speak for themselves, and the math should guide brokers and borrowers alike.

One of the education tools we’ve created is an Interest-Only Flex calculator that will demonstrate to your client which product mix will provide the best cash flow option for their specific situation.

CMP: Does it meet B-20 requirements?

BB: Absolutely. Obviously great effort was made to ensure that the mortgage features were B-20 compliant.

Also, the product speaks to the concerns that regulators and government officials had that a large portion of borrowers’ disposable income went towards mortgage payments. Because Canadians are predisposed to ensuring that their mortgage payments are up to date, the greater economy doesn’t benefit – those are the government’s words, not ours. Therefore, we created a product that allows Canadian borrowers to still provide shelter for their families, but with lower payments so that the excess funds can be applied to other market sectors.

CMP: Will this product be launched in Quebec in the future?

BB: Not for the foreseeable future, but we plan on other innovative products and launches solely for the Quebec marketplace.

CMP: How does the compensation on this mortgage work?

BB: It’s identical to our existing commission structure, whether it be trailer fees through MERIX or upfront compensation with our Lendwise model. Nothing changes.

CMP: What has the initial reaction to Interest-Only Flex been like?

BB: Extremely positive. We’ve received significant kudos for launching something new and being innovative. The response in larger urban centres – i.e. GTA and GVA – has been very positive, given that our loan limits can now be up to $2 million on an uninsured basis.

CMP: Are there any future innovations in the pipeline from MERIX Financial? What’s next?

BB: There’s always something that’s next. It’s what we do. A lot of our focus and attention is geared towards the digital experience for the broker and the borrower. Stay tuned.  By CMP.

Some Ontario Realtors may need to become licensed travel agents

Real estate brokerages in Ontario that work with consumers to arrange short-term accommodations are being told they must become licensed as travel agents.

The Travel Industry Council of Ontario (TICO) has begun a campaign targeting real estate brokerages with threats of legal action because they work with consumers arranging short-term accommodations, says the Ontario Real Estate Association (OREA). TICO is sending “compliance letters” to Realtors demanding that they become registered as travel agents.

In a letter to Jim Wilson, Ontario’s Minister of Economic Development, OREA CEO Tim Hudak says, “As you know, Realtors are registered under the Real Estate & Business Brokers Act, 2002 (REBBA). This double registration requirement is a needless piece of red tape that costs real estate small businesses thousands of dollars, considerable time and much aggravation with no discernable benefit to consumers.”

To register under TIA, a real estate brokerage must take a nine-module TICO administered course and exam. In addition, brokerages are required to pay a $3,000 registration fee, a

$10,000 security deposit and maintain at least $5,000 of working capital, says OREA.

The brokerages being targeted are operating in Georgian Bay, Prince Edward County, Muskoka and Haliburton, where recreational properties are in high demand, it says.

“According to TICO, real estate professionals are not permitted to transact short term rental properties because these properties do not fall under the Residential Tenancies Act, 2006 (RSA). TICO defines short-term rental properties as accommodations offered to ‘travelers’ for 30 days or less. The term ‘travelers’ is not defined under the Travel Industry Act, 2002. TICO maintains that a real estate registrant is only permitted to transact residential leases covered by the RSA,” says the OREA letter.

“OREA opposes TICO’s arbitrary double registration requirement. Our position is based on the following:

“Real estate registrants in Ontario are licensed to trade in all types of real estate with very limited exceptions.

“Based on our preliminary analysis, there is no basis for TICO’s ruling that real estate registrants can only transact RSA defined rental leases.

“Real estate registrants are subject to strong ethical requirements under REBBA, making the registration requirement redundant from a consumer protection point of view; and,

“Real estate registrants are required to carry robust errors and omissions insurance that is designed to protect consumers.”

Hudak’s letter continues: “This piece of red tape is a money grab, which is costing real estate brokerages thousands of dollars. These funds should be repaid to our member real estate brokerages.”

The association is asking that TICO put its compliance campaign on hold until all parties can meet to try and work out a solution that “protects consumers and minimizes unnecessary overlap and duplication.”  By REMonline.com

Roundup of the latest mortgage and housing news.

From Mortgage Professionals Canada.

•Toronto home prices steady as short supply offsets mortgage woes (BNN Bloomberg)

•Vancouver home sales sink in September as listings hit multi-year highs (BNN Bloomberg)

•Here’s how mid-density housing could become a reality for GTA cities (Livabl)

•Despite affordability concerns, Millennials are surprisingly optimistic about the GTA housing market (Livabl)

•Vancouver Housing Demand Drops Like A Rock, And Prices Are Now Falling (Huffington Post)

•Here’s one way the new USMCA deal will affect the Canadian housing market (Livabl)

•Starting today, self-employed Canadians have a better shot of qualifying for a mortgage (Livabl)

•Housing affordability is more important to BC Millennials than fighting climate change, childcare: poll (Livabl)

•A jump in sales marks the start of the GTA fall housing market, according to experts (Livabl)

•Housing Affordability In Canada At Worst Levels In Almost 30 Years: RBC Economics (Huffington Post)

•Toronto, Vancouver Have World’s 3rd And 4th Largest Housing Bubbles: UBS (Huffington Post)

•According to this expert, there’s going to be a surge of GTA new home sales this fall (Livabl)

•This website reveals what your neighbours paid for their Vancouver homes — whether real estate boards like it or not (Livabl)

•Priced out of Toronto? Here are Ontario’s most affordable housing markets (Livabl)

•GTA luxury real estate rebounds heading into the fall: Sotheby’s (Livabl)

•Toronto Isn’t Ontario’s Least Affordable Housing Market: Zoocasa Report (Huffington Post)

•Benefits of Homeownership Reaffirmed in New Study (Canadian Mortgage Trends)

•Home sales increase for 4th straight month, but prices still flat nationally (CBC)

•Canadian Home Sales Rise for a Fourth Straight Month (Bloomberg)

•The Canadian housing market will be kept “in check” for the rest of the year: CREA (Livabl)

There is never a better time than now for a free mortgage check-up.  It makes sense for us 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 right for you.

Adriaan Driessen
Mortgage Broker
Dominion Lending Forest City Funding 10671
Cell:     519.777.9374
Fax:      519.518.1081
riebro@me.com
www.iMortgageBroker.ca
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
loriakovac@icloud.com
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
adriaan@pc275.com
www.PC275.com
415 Wharncliffe Road South
London, ON, N6J 2M3