WEEKLY RESIDENTIAL  MARKET UPDATE 

Industry & Market Highlights 

CMHC releases Sept. housing starts data

The annual pace of Canadian housing starts fell to their lowest level in nearly two years in September.

Canada Mortgage and Housing Corp. says the seasonally adjusted annual rate came in at 188,683 units last month, down from 198,843 in August.

Thomson Reuters Eikon says economists had expected an annual rate of 210,000 for September.

September marks the third straight monthly decline.

The slowdown in the pace of housing starts comes amid rising interest rates from the Bank of Canada, and more restrictive mortgage rules.

“The September housing starts report fits with the relative calm and return to normality in sales, market balance and price growth that we are seeing across most of the country this year, in particular Toronto, following speculative excesses in Southern Ontario earlier last year and a moderate correction in response to policy measures earlier this year,” wrote Sal Guatieri, a senior economist with BMO Capital Markets, in a note.

“Demand continues to be supported by the fastest population growth in 27 years and new millennial-led households. A calmer housing market is just what the doctor ordered, and won’t discourage the Bank of Canada from raising rates on Oct. 24.”

CMHC says the pace of urban starts fell by 5.9 per cent to 175,653 units. The slowdown was dragged down by an 8.9 per cent drop to 122,656 units in urban multiple-unit projects such as condos, apartments and townhouses. Single-detached urban starts increased by two per cent to 52,997.

Rural starts were estimated at a seasonally adjusted annual rate of 13,030 units, while the six-month moving average of the monthly seasonally adjusted annual rates was 207,768 for September, down from 213,966 in August.

British Columbia led the declines with a drop of 43.3 per cent due to stiffer mortgage rules and growing lack of affordability, particularly in the Greater Vancouver area. Alberta also saw a drop of 34.8 per cent, amid a weakening in the oil-producing economies.

Meanwhile, Ontario housing starts increased 21.3 per cent, led by Toronto condos and Quebec was up 15.4 per cent.  By The Canadian Press.

First-time homebuyers are maxed out, but confident

Canadians are not holding back when it comes to buying their first home.  The annual mortgage consumer study by Canada Mortgage and Housing Corporation finds that 85% of first-time buyers are maxing-out their home-buying budgets.

The CMHC study indicates that affordability is the most important factor for both first-timers and repeat buyers, ahead of things like the condition of the home, the neighbourhood and distance to work.

More than half of recent homebuyers say other key concerns include unforeseen costs, paying too much for their property and rising interest rates.  Still, 76% of first-time buyers are confident they will be able to meet their mortgage payments.  Sixty percent of first-time buyers and 69% of repeat buyers claim to have sufficient assets, such as investments or other properties, which they could use to fund their mortgage if they needed to.

There is some support for this consumer confidence.  Recent reports by the credit monitoring firms Equifax and TransUnion indicate the growth of consumer debt (non-mortgage) is slowing and delinquency rates are declining.  At the same time the Office of the Superintendent of Financial Institutions reports the quality of mortgage loans is improving.

Rising interest rates, foreign buyer taxes and tougher mortgage qualification rules appear to be cooling real estate sales and prices across the country but the Canadian Real Estate Association is maintaining a positive forecast.

The Bank of Canada is expected to bump-up its benchmark interest rate by a quarter-point – to 1.75% – on Wednesday.  By First National Financial.

The temperature may be dropping, but Montreal is heating up

Never mind Vancouver.  Do not bother with Toronto.  Canada’s hot housing market du jour is Montreal.

While Toronto and Vancouver have been getting all the attention as the busiest, most expensive and most volatile markets in the country, Montreal has been on a sales and price appreciation roll for 43 consecutive months.

In September, Montreal home sales hit a nine year high; 3,220 units (led by 1,206 condominium transactions), up 8% compared to a year ago.  Year-over-year prices climbed 7% for single-family homes ($336,000), 6% for plexes ($504,000) and 4% for condos ($263,000).

In Vancouver, year-over-year sales declined from February through August.  In Toronto, gains have been modest.  September sales were up just 1.9% compared to 2017.  Prices were up about 2%.

High prices, rising interest rates and foreign buyer taxes appear to be weighing down the two top markets.  Montreal, meanwhile, is enjoying the benefits of good immigration, economic growth, consumer confidence and public infrastructure projects, according to the local real estate board.  By First National Financial. 

 

Economic Highlights

 

Interest rate rise “a done deal” but impact is showing says TD

There is little dispute among economists that the Bank of Canada will increase interest rates again this week.

Wednesday’s hike will be accompanied by explanation as to why this is necessary in the context of better-than-expected economic growth in the third quarter and core inflation is on target.

TD Economics senior economist Fotios Raptis says the hike is “a done deal” but notes in a report that the impact of rising interest rates is starting to bite.

He highlights weaker retail and consumer spending data with nominal spending declining in Saskatchewan, Quebec, Alberta, and British Columbia.

National home sales were also weaker in September and growth in home prices was weaker. TD is forecasting a slower pace of home activity in the months ahead as mortgage costs and affordability weigh.

Headline inflation, Raptis points out, was also down sharply in September with the CPI rising 2.2% year-over-year, well below the expected 2.7%.

However, with a strong business outlook, tight labour market, and rising wages, he believes that the BoC has reason to believe the economy can withstand another rate rise.

Rate rises will remain gradual

Meanwhile, CIBC Economics’ Avery Shenfeld says the BoC will remain cautious on rate rises following this week’s near-certain hike.

Apart from the NAFTA-replacement USMCA trade deal, not much has changed since the central bank last spoke of gradual rate rises.

Although Shenfeld expects Governor Poloz to avoid too much forward guidance although there should be positive talk regarding growth in 2018 and 2019.  By Steve Randall.

Did the new USMCA effect rates?

It’s been rough week for bonds. Since we closed the books last Friday, 2 year yields are up 10 basis points to 2.31%, 5 year yields are up 15 basis points to 2.48%, and 10 year yields are up 16 basis points to 2.58%.

Of course the question isn’t where rates are, but rather WHY are rates here?  The most obvious answer was Canada’s agreement to join the US-Mexico trade agreement (now the “USMCA”) last weekend.  Canada made some key concessions on dairy but the US agreed to protect Canada from potential tariffs on autos.  The reduction of uncertainty and de-escalation of a possible trade war was bullish for Canadian economic growth expectations and rates move higher.  The initial down trade (prices) was highlighted by momentum/negative gamma type selling (or put another way, more sellers than buyers).  Easy peasy.

The selling is presently being punctuated by a stronger than expected jobs report this morning.  Canadian employment popped by 63,300 jobs in September, more than reversing the drop reported last month.  The unemployment rate dropped a tick to 5.9%.  We also can’t underestimate the impact of the new NHL season kicking off with a potentially historic run in the cards for the Leafs.  With the removal of trade overhang (and two goals by Auston Matthews in the season opener) the market has now priced in two 25 basis point hikes by the BoC by January.

Commercial Break

We’ll pause here to highlight First National’s excellent early rate lock program for all your commercial mortgage borrowing needs.  If you’ve already hedged your fixed rate borrowing, congratulations.  If you haven’t, it’s not too late.  Help me help you.  Call your favourite First National underwriter, lock-in, and sleep better!  Two sure things in life are the benefits of sunscreen and hedging your fixed rate mortgages.  By Jason Ellis, Senior Vice President and Managing Director, Capital Markets, First National Financial.

Mortgage Interest Rates

Prime lending rate is 3.7%.  Bank of Canada Benchmark Qualifying rate for mortgage approval is at 5.34%.  Fixed rate increased across the board on average 25 basis points.  Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages very attractive.

Terms	Posted Rates	Payment   Per $100k	Our Rates	Payment   Per $100k	Savings
6 Months	3.14%	$480.46	3.10%	$478.39	$2.07
1 Year	3.34%	$490.86	3.29%	$488.25	$2.61
2 Years	3.74%	$512.02	3.44%	$496.11	$15.91
3 Years	3.89%	$520.07	3.54%	$501.38	$18.69
4 Years	3.94%	$522.77	3.64%	$506.69	$16.08
5 Years	5.59%	$615.64	3.54%	$493.48	$122.16
7 Years	5.80%	$627.97	4.04%	$528.19	$99.78
10 Years	6.10%	$645.76	4.14%	$533.64	$112.13
Variable	2.70%	$457.99	2.70%	$457.99	$0.00
Prime Rate	3.70%
Please Note: Payment per $100K and possible savings shown above are based on a 25-year ammortization. Rates are subject to change without notice and the rate you receive may vary depending on your personal financial situation. *OAC E&OE. Please reply to this email and I will be happy to provide you with greater detail and determine the best rate available for you.

This edition of the Weekly Rate Minder shows the latest rates available for Canadian mortgages. At Dominion Lending Centres, we work on your behalf to find the best possible mortgage to suit your needs. Explore mortgage scenarios using helpful calculators on my website: http://www.iMortgageBroker.ca