12 Jul

Bank of Canada raises its key overnight rate affecting prime rates. July 12, 2017

General

Posted by: Anne Martin

For the first time in seven years, the Bank of Canada announced today that it was hiking its key overnight rate by a quarter percentage point (25 basis points) bringing it to 0.75 percent as the economy has staged a broadly based economic expansion this year. In a break from tradition, the Bank has taken this action even though inflation remains well below its target rate of 2 percent. Indeed, inflation has hit its lowest level since 1999. The consumer price index (CPI), released in late June, rose only 1.3 percent in May from a year ago, down from an annual pace of 1.6 percent in April. Both Governor Poloz and Senior Deputy Governor Wilkins have emphasized that the Bank must begin to hike rates pre-emptively due to the lagged effect of monetary tightening.

Measures of annual core inflation, a key indicator tracked by the Bank of Canada, which excludes volatile components such as food and energy, fell to its lowest in almost two decades. The average of the central bank’s three core measures declined to 1.3 percent, its lowest level since March 1999. The Bank has recently played down sluggish inflation numbers, suggesting they reflect the lagged effects of past excess capacity. Incoming inflation figures have been well below the Bank’s forecasts and will likely remain low for some time as oil prices are wobbling downward and wage inflation is a mere 1.3 percent–just keeping up with core inflation.

Last Friday’s continued strong employment report for June cinched the rate-hike. Employment rose a hefty 45,300, lifting the 12-month gain to a whopping 350,000 and trimming the jobless rate to match the cycle low of 6.5%. What’s more, total hours worked surged in the second quarter at the fastest rate since 2003. GDP climbed an impressive 3.3% year-over-year in April, while record levels of exports and imports suggest activity stayed on track in May, and further record highs for auto sales suggest consumers kept right on spending in June. Spending strength is yet another sign that after two years of lagging behind, Canada’s overall growth rate has come bouncing back in the past year to surpass the U.S. pace. The Bank now expects the output gap to close around year end.

Markets have been expecting this move for some time, as monetary policymakers have publicly stated that the 2015 interest-rate cuts appear to have done their job. Governor Stephen Poloz has said that the Canadian economy enjoyed “surprisingly” strong growth in the first three months of this year and that he expects the growth pace to remain above potential (estimated at 1-3/4 percent), setting the stage for this rate hike. In response, Canadian bond yields have moved higher, the Canadian dollar has surged anew, and the big Canadian banks raised mortgage rates by roughly 20 basis points last week in anticipation of this move. The 5-year Government of Canada bond yield has surged nearly 50 basis points in the past month. Indeed, 10-year government yields are up to roughly 1.9 percent, their highest yield in more than two years. The Canadian dollar surged to above 77.5 cents, the strongest level in 10 months, up more than 6 percent from the lows in early May. Stalling oil prices may reverse some of the loonie’s recent gain.

The big banks will also raise their prime rates, driving up the cost of variable rate mortgages, other loans and lines of credit tied to the benchmark rate. While the banks shaved their response to the interest rate cuts to less than the 25 basis points decline when monetary policy was easing, it is likely now that banks will adjust lending rates to close to the full 25 basis point increase. This asymmetric response is consistent with the desire of regulators to slow the growth in household debt.

Housing is one crucial component of the Canadian economy, and it has slowed meaningfully at the national level, in line with the central bank’s expectations. Prices and sales have declined in the Greater Toronto Area and surrounding municipalities since the Ontario Fair Housing Plan announcement in late April. However, housing activity has gained momentum in Montreal and Ottawa, while Alberta stabilizes and Vancouver posted a modest bounceback from the swoon following its August 2016 imposition of a foreign buyers’ tax. The underlying strength in many housing markets is the reason why policymakers are proposing new rules to tighten mortgage lending. This time OSFI–the regulator of financial institutions–is proposing that banks stress test non-insured borrowers at two percentage points above the contract rate. This despite the fact that non-insured borrowers are putting at least 20 percent down on their home purchase. A small BoC rate hike would reinforce the multi-faceted steps to calm the broader housing market.

The Bank has repeatedly stated that “macroprudential and other policy measures have contributed to more sustainable debt profiles,” even though household debt-to-income levels have hit a record high (see chart).

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Uncertainties, of course, persist–particularly on the trade side as NAFTA is renegotiated in fewer than 90 days. The U.S. has already imposed duties on softwood lumber, and President Trump’s rhetoric remains hostile, threatening U.S. import duties on steel and other products. These uncertainties notwithstanding, I expect another Bank of Canada rate hike in the fourth quarter. The Federal Reserve will also likely increase rates in Q4. Look for a slow crawl upward in interest rates from both central banks in 2018.

11 Jul

NDLC Newsletter for July 2017. Are rate hikes looming?

General

Posted by: Anne Martin

Welcome to the July issue of my monthly newsletter !

Summer vacation at last! Two months of fun in the sun lie ahead! This month’s edition takes a look at the recent interest rate-hike warnings in the media, and a closer look at the housing market.

Please let me know if you have any questions or feedback regarding anything outlined below.

Thanks again for your continued support and referrals!

 

Rate Hikes: Still As Much A Matter Of ‘If’ As ‘When’

One month of headlines suggest interest rates are dropping to new lows, another says no changes anytime soon, and recently many headlines seem to be suggesting an increase soon. This stream of mixed messages contradicting one another has been steady since rates dropped to 50-year record lows in 2009.

Many were adamant in 2009, and each year since, that rates could go no lower, and yet they have. Sure there have been a few shortlived blips upward along the way, in defiance of all who are calling for a return to normal… whatever normal may now be.

The key driver of interest rate movement is the economy in general. Not a thin slice of it such as real estate. What drives interest rates down? Economic bad news. What will drive rates up? Economic good news.

Economic good news seems in short supply since 2008.

Interest rates are a very large economic lever, far too large to be used simply to cool the arguably overheated real estate markets of two particular cities. Cooling of real estate is not addressed via interest rate hikes, markets are cooled and have been cooled as of late through lending policy changes.

Many commentators forget that only a few short years ago there existed 40-year amortizations with 100% financing not just for owner-occupied but for investment properties, and variable-rate mortgage qualifications that were much easier than today.

The reality is that borrowers in 2007 – at nearly double the current interest rates – qualified for larger, and arguably riskier, mortgages than borrowers today do.

And always do the math, yes math is no fun, but here is a shortcut:

A 0.25% rate increase equals a $13 per month increase in payments per $100,000 of mortgage balance.

And keep in mind that the majority of Canadians are in fixed rate mortgages, and the majority of them have renewal dates a year or two away. And for those mortgage holders an increase from todays rates of 0.25% – 0.50% would in fact only be equal to their current rate.

A 0.25% increase in the Bank of Canada rate would impact less than 10% of households across Canada, perhaps less than 5% of households. And that impact would be on average ~$39 per month.

Could you handle a $39 increase in your mortgage payment? Odds are you have actually already increased the minimum payment on your own as so many Canadians do. In that case you are already ahead of any increase.

Is the economy truly strong enough for an increase? We shall see come July 12 what the Bank of Canada thinks.

Are the small percentage of variable rate mortgage holders in Canada not already making higher payments ready for a 0.25% increase – overwhelmingly yes, they absolutely are.

The big beneficiaries of these uncertain times or trepidation around even a slight interest rate increase will be those in fixed rates approaching renewal dates over the next 12 months, and those enjoying the ride in their variable rate mortgages.

Be sure to start the renewal conversation with your broker six months out from the mortgage renewal date. Your current lender may suggest that rates are about to move and suggest locking into something early as the right move, but always consult with your independent mortgage broker first to determine if the move being suggested is right for you – or simply just right for the lender.

What is right for you matters to us.


 

Canadians have options when it comes to housing

By Dr. Sherry Cooper

Despite the variation in real estate markets across Canada, homebuyers face the same fundamental question whether they are first time buyers in Toronto, families purchasing a fixer-upper in Atlantic Canada, or down-sizing boomers in the West, says Dominion Lending Centres chief economist Sherry Cooper: What are you willing to do to achieve your goal.

“For the first-time homebuyer, it’s a trade-off between living close to your workplace and having to pay more for your home versus living farther away and facing a meaningful commute to get more for your money,” she says.

Baby boomers with their retirement nest egg tied up in their single-family homes, face very similar circumstances. For boomers, staying in the city usually means downsizing to a condo, which is more expensive per square foot and can take a serious bite out of that nest egg.

Moving out of the city often means giving up family, friendship, and services.

In between, there’s the move-up market – people with growing families who are looking for their second home. They have equity, so they can afford a larger down payment and typically, they are close to their peak earning years. The challenge they face, particularly in regions where the market is strong, is a shortage of suitable homes. Investors and developers are frequently bidding for the same properties. People thinking of moving up may want to consider another option: Buying a larger condo in the suburbs or in smaller communities. There is a demand for more choice in this market segment, she says, that has led to developers start building two and three-bedroom units in the suburbs thatinclude amenities like indoor and outdoor play areas.

The lifestyle issues, Cooper says, are best solved by family discussion. First, sit down and talk. Then, talk to a mortgage broker, a real estate agent and possibly an accountant.

“For a first-time home-buyer in particular, you really do need to know how much you can afford. It may be less than what you can borrow. You don’t want to go right to the edge because there’s just too much risk,” she says. “You want to have enough of a cushion that you could take care of an emergency, or in the event of one of you losing a job. You have to have some precautionary savings.”

For all demographic groups Cooper advises locking into a fixed-rate mortgage. “I would go for a five-year fixed if I were buying right now. Because rates are low and the chances are that in the future, they will be higher.”

Mortgages are complex, and she cautions against simply taking the best deal a bank has to offer. For example, the first-time buyer may want the option of paying down the principal more quickly.

“That’s the whole story of why mortgage brokers make so much sense, because they can shop the loan for you and can find something that is much more customized to what your personal needs are.”

For first-time buyers and boomers, renting is also an option that shouldn’t be ignored, she says. Boomers can then get the full amount of equity from their home while first-time buyers can continue to save for their down payment. Similarly, those in the move-up market may want to consider using the equity in their home to finance a home renovation rather than buying a new residence.

8 Jul

Continued Strength in Cdn Employment: Report For June 2017

General

Posted by: Anne Martin

Continued Strength in Canadian Employment Report For June 

Canadian Jobs Beat Expectation in March, But Wage Growth Is Sluggish
The June jobs data blew past expectations, all but insuring that the Bank of Canada will hike interest rates by a quarter point next week–the first rate hike in seven years. Market rates have already risen in expectation and the Royal Bank has boosted interest rates on  its two-year, three-year and five-year fixed-term mortgage rates up by 20 basis points each. The Canadian economy has been performing well with 3.7% growth in GDP in the first quarter and the second quarter gain is now likely to be roughly 2-3/4%. The Bank of Canada has been signalling a rate hike for a few weeks, despite continued low inflation, as incoming economic data have been surprisingly strong. This has boosted the Canadian dollar, now trading at about 77.4 cents US even as oil prices have weakened to under $44.00 a barrel (WTI).

Higher mortgage rates will come on the heels of a marked slowdown in the housing market in the Greater Toronto Area and surrounding region. According to data released this week by the Toronto Real Estate Board, June resales activity continued its abrupt slowdown, which began with the April 21 imposition of a foreign buyer’s tax in the Greater Golden Horseshoe. Over the same period, sellers have increased sharply as new listings and active listings have surged, putting downward pressure on average home prices. Year-over-year gains in house prices have more than halved from a 30% y/y gain in March to less than 15% most recently. The Ontario government actions to slow housing have clearly had a marked psychological impact as both buyers and sellers perceive that housing has peaked. Moreover, recent proposals by the bank regulator, to stress test mortgage applicants for non-insured loans (where downpayments are 20% or more) on the same basis as for insured loans will also dampen housing activity.

Employment rose by 45,400 in June, mostly in part-time work. The jobless rate fell by 0.1 percentage point to 6.5% nationwide. Compared to twelve months earlier, there were 351,000 (1.9%) more people working, where most of the growth was in full-time employment. The total number of hours worked increased 1.4% over this period.

Job growth in Canada in the second quarter posted the fourth consecutive quarter of stronger-than-anticipated gains and the strongest quarterly growth since 2010. Job gains have accelerated this year from its  2016 pace.
Average hourly wages of permanent employees rose 1.0% in June from a year earlier, matching the pace for May. For all workers, wages rose 1.3% over that period. The pace of wage gains, a closely watched indicator of the health of the labour market, had slowed to a record low in April, and the recent acceleration will reinforce speculation the time has come for higher interest rates.

Quebec and British Columbia led the way in job gains. The Quebec unemployment rate held steady at a record-low 6.0%. In BC, employment rose by 20,000 and the jobless rate declined 0.5 percentage points to 5.1%, the lowest provincial unemployment rate in Canada. In Ontario, there was little change in the number of people working, and the unemployment rate was also little changed at 6.4%. On a year-over-year basis, employment in the province grew by 75,000 (+1.1%). Employment in Ontario was virtually unchanged in the first half of 2017, following an upward trend in the second half of 2016.More people were employed in professional, scientific and technical services, as well as in agriculture. At the same time, employment declined in business, building and other support services.
U.S. Hiring Accelerates While Wage Growth Remains FlatPayrolls increased by 222,000 in June in the US, stronger than expected, but the jobless rate increased to 4.4% from a 16-year low of 4.3% as the robust labour market pulled discouraged workers off the sidelines. The labour force participation rate–the share of working-age people in the labour force–which had fallen to record lows in the wake of the financial crisis and recession, has now increased to 62.8%, but it is still near its lowest level in more than 30 years. The U-6 measure of underemployment, which includes discouraged workers and those who are involuntarily working less than full-time, rose to 8.6% from 8.4%, the first increase since January.The report marks a relatively strong finish for the labour market in the second quarter that should support continued gains in consumer spending in coming months. Federal Reserve policy makers raised interest rates last month and reiterated plans to start reducing their balance sheet and increase borrowing costs once more this year.

Wages showed declines in nondurable-goods manufacturing, professional and business services; small gains in retail, transportation and warehousing; overall wages in the US are rising at 2% three-month annualized pace. Inflation remains below the 2% Fed target, but Fed rate hikes at a measured pace will continue.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca
23 Jun

Surprise Injection of capital for Home Trust. Mortgage Market Update June 23, 2017

General

Posted by: Anne Martin

MARKET UPDATE

Is this surprise injection of capital enough to save Home Capital?

  Click here to find out.


Best rates are as low as 2.49* – 2.79

*high ratio purchase% for a 5 year fixed, variable rate prime minus .70%
*OAC  **conditions apply

This is a critical time to sit down and review your household financing needs. Please do not hesitate to contact me should you have any questions.

If you are in the market for a home, or need to refinance in the next year, it is really important to make an appointment today to find out how these changes may affect you.

**rates subject to change with market conditions – E. & O. E.


Terms Bank Rates Our Rates
6 Month 3.14% 3.10%
1 YEAR 3.04% 2.34%
2 YEARS 2.84% 2.14%
3 YEARS 3.44% 2.34%
4 YEARS 3.89% 2.44%
5 YEARS 4.64% 2.49* – 2.79
*high ratio purchase%
7 YEARS 5.30% 3.14%
10 YEARS 6.10% 3.69%
Rates are subject to change without notice. *OAC E&OE
Prime Rate is 2.70%
Variable rate mortgages from as low as Prime minus .70%

 **Please note that rates shown above are subject to change without notice. The rates shown are  posted rates and the actual rate you receive may be different, depending upon your personal financial situation. “Some conditions may apply. Rates may vary from Province to Province. Rates subject to change without notice. *O.A.C. E.& O.E.” Check with your Dominion Lending Centres Mortgage Professional for full details and to determine what rate will be available for you.

*O.A.C., E.& O.E.

21 Jun

Consumers Home Digest – Mortgage Newsletter June 2017

General

Posted by: Anne Martin

 

Welcome to the June issue of my monthly newsletter which is designed to help keep you in the know regarding Real Estate and Mortgage related matters!

Summer is here!  This month’s newsletter talks about Pre-Approvals & Credit Score Compatibility.

Please let me know if you have any questions or feedback regarding anything outlined below.

Thanks again for your continued support and referrals!

Summer is here!  This month’s newsletter talks about Pre-Approvals & Credit Score Compatibility.

Please let me know if you have any questions or feedback regarding anything outlined below.

Thanks again for your continued support and referrals!


A Mortgage Pre-Approval is not what you might expect it to be

Although going through the pre-approval process is more important than ever, the actual term ‘pre-approval’ is often misleading. It really addresses just a few variables that may arise once in the middle of an actual offer.

The pressure in many markets has never been greater to write a condition-free offer, yet due to recent changes to lending guidelines by the federal government, the importance of a clause in the contract along the lines of ‘subject to receiving and approving satisfactory financing’ has also never been greater. (There are variations to be discussed with your Realtor around the specific wording of such clauses.)

Often clients are reluctant to write the initial offer on a property without feeling like they are 100 per cent pre-approved. An understandable desire. Many clients falsely believe they have a 100 per cent guarantee of financing, and this is not at all what a pre-approval is.

A lender must review all related documents, not just the clients personal documents, but also those from the appraiser and the realtor as the property itself must meet certain standards and guidelines.

The pre-approval process should be considered a pre-screening process. It does involve review and analysis of the clients current credit report, it should also include a list for the client of all documents that will be required in the event that an offer is written and accepted. Ideally your Mortgage Broker will review all required documents in advance, but few lenders will review documents until there is an accepted offer in place.

Clients should come away from the initial process with a clear understanding of the maximum mortgage amount they qualify for along with the various related costs involved in their specific real estate transaction. Equally as important; a completed application allows the Mortgage Broker to lock in rates for up to 120 days.

Why won’t a lender fully review and underwrite a pre-approval?

  • Lenders do not have the staff resources to review ‘maybe’ applications – they have a hard enough time keeping up with ‘live’ transactions.
  • The job you have today may well not be the job you have by the time you write your offer. (ideally you do not want to change jobs while house-shopping)
  • If more than four weeks pass then most of the documents are out of date by lender standards, and a fresh batch needs to be ordered and reviewed with the accepted offer.
  • The conversion rate of pre-approvals to ‘live trasnactions’ is less than 10 per cent, and this alone prevents lenders from allocating recources to reviewing pre-approvals.

It is this last point in particular that makes it so difficult to get an underwriter to completely review a pre-approval application as a special exception. Nine out of ten times that underwriter is spending their time on something that will never actually happen.

The bottom line is that a clients best bet for confidence before writing an offer is the educated and experienced opinion of the front-line individual with whom they are directly speaking, their Mortgage Broker. Although this individual will not be the same person that underwrites and formally approves the live transaction when the time comes they likley have hundreds of files worth of experience behind them. That experience is valuable.

It is due to the disconnect between intake of application and actual lender underwriting a live file that having a ‘subject to receiving and approving satisfactory financing’ clause in the purchase sale agreement is so very important.

Without a doubt the most significant factor in recent years which has undermined clients preapprovals is the relentless pace of government changes in lending guidelines and policies. Change implemented not only by the Government also by the lenders themselves. It is very easy to have a pre-approval for a certain mortgage amount rendered meaningless just a few days later through changes to internal underwriting guidelines. Often these changes arrive with no warning and existing pre-approvals are not grandfathered.

So, while it is absolutely worthwhile going through the pre-approval process before writing offers, and in particular before listing your current property for sale it is most important to stay in constant contact with your Mortgage Broker during the shopping process.

Be aware that aside from the key advantage of catching small issues early and securing rates a pre-approval is NOT a 100 per cent guarantee of financing.

Credit Score Compatibility: The Connection Between Financial Wealth and Romantic Health

In a study from 2015, researchers found a connection between the likelihood of a breakup in a relationship and the credit scores of each person.

Essentially, this study suggested that two people with excellent credit scores are far more likely to stay together long-term than a couple where one or both parties have abysmal scores. Because finances are such a significant aspect of relationships, the couple’s credit score compatibility is a reliable indicator of potential strains down the road.

Much marital discord is found in household in finances. According to a different study from 2012, “financial disagreements are stronger predictors of divorce relative to other common marital disagreements.”

Money is a significant dynamic in people’s social and romantic lives.

This begs the question, should you request a credit report for your significant other? (ideally before they become too significant) A pre-screening for fiscal health prior to the co-mingling of assets may well be prudent, but few of us would feel polite asking…at least the first time around.

Did you know… Homeowner Tips
Summer Vacation Note:
There are eight preset dates per year on which the Bank of Canada makes decisions which affect variable rate and short term fixed rate mortgages. The last increase to the Prime rate by the Bank of Canada was in September of 2010. No increase is expected anytime soon.

Longer term, i.e. the five year term, fixed rates are influenced by the bond market, and this is arguably less predictable and more volatile.

 

  1. Book that vacation sooner rather than later. Camping sites seem to book up faster than ever each year.
  2. Many homeowners insurance policies require that someone physically check in on the home a minimum of once per week during your absence. Ideally there is an alarm monitoring record of somebody attending the property, if not then at the very least keep a record of an email exchange confirming that your property was viewed at a certain time and date. A burst hot water tank or even a leaking pipe left unattended for days or weeks on end can result in a denied insurance claim.
  3. Get out there and enjoy the great outdoors. Make the most of the Summer of 2017!

20 Jun

Barrie and area real estate price update for May 2017

General

Posted by: Anne Martin

Tipping the scales towards your home ownership

As someone who is directly involved with the Barrie mortgage and Barrie and area real estate industry, it is important that I consistently check in with where the industry is at both as a whole and regarding the Barrie region.

According to the Barrie & District Association of REALTORS Inc.’s prices in Barrie and district have been slightly slowing down as compared to the fast market of the last few months.

As per Rob Alexander, 2017 President, Barrie & District Association of REALTORS® Inc. (BDAR)“While prices continue to increase on a year‐by‐year level, there seems to be slight slowing to the fast and hot market we were seeing earlier this year. Your local Realtor can help you understand the changes in the market as you look to do your real estate transactions.”


A break down of how the prices fared in Barrie and area real estate in May 2017 according is as follows –

City of Barrie
Within the City of Barrie, detached residential properties posted an average selling price for the month of May 2017 of $566,077 an increase of 25% over May 2016.

Residential townhouse, link, and semi‐detached homes in the City of Barrie posted an average selling price of $408,622 in May 2017, a 28% increase over May 2016.

Condominium sales average for the City of Barrie for the month of May 2017 was $336,771, a 33% increase compared to May 2016.


Essa Township
In Essa Township, detached residential properties posted an average selling price of $532,155 in May 2017, an increase of 2% over May 2016.


Town of Innisfil
Detached residential properties in the Town of Innisfil posted an average selling price of $588,404 in May 2017, an increase of 19% over the month of May 2016.


Oro‐Medonte Township
The average selling price for detached residential properties in Oro‐Medonte in May 2017 was $767,560 an increase of 26% over May 2016.


Springwater Township
Detached residential homes in Springwater Township posted an average selling price in May 2017 of $772,596 an increase of 33% over May 2016.

Interest rates are still at an all-time low making it still a great time to invest in a home in the Barrie area as prices are anticipated to continue to rise. Although there has been a bit of a slow down resulting in more properties on the market at any given time, you may still need to be prepared to act quickly. With the migration from high priced cities like Toronto and the GTA and demand outpacing supply, Barrie and area is still experiencing some multiple offer situations making it even more imperative that you contact a mortgage agent or mortgage broker before locating your next home or investment property.

The Barrie real estate market is one that is crowded and extremely competitive. If you’re looking at purchasing or selling a home in the region, it is highly recommended that you seek a mortgage agent in Barrie in order to help you navigate the process. Anne Martin is a mortgage agent in Barrie and has been helping her clients find their way through the Barrie mortgage and real estate markets for years with great success. If you’re looking for a mortgage in the Barrie area, get in touch with Anne today!

Source: https://www.bdar.ca/public/Stats/May2017StatsMediaRelease.pdf

17 Jun

GTA Sales Down Sharply as New Listings Surge In May

General

Posted by: Anne Martin

On June 15, 2017 the Canadian Real Estate Association released it’s May data which showed a marked slow down in activity in the GTA region since the government made its announcement in April of a sixteen point program to bring affordability back to the real estate market.  See the announcement here.

Crea’s national data shows that the number of homes sold on the Canadian MLS system fell 6.2% in May 2017 compared to April 2017.  The largest month over month decline since August 2012. Most of this drop was reflective of a 25.3% drop in the GTA.  Activity was also down considerably in other Ontario regions including Oakville-Milton, Hamilton-Burlington and Barrie.

Year over year, sales were down in May by 1.6%, not seasonally adjusted, with gains in 60% of all housing markets contrasting a drop in the GTA of 20.8%.  “Recent changes to housing policy in Ontario have quickly caused sales and listings to become more balanced in the GTA,” said CREA President Andrew Peck.

Nationally, new listings in May went up .3% following 10% in April.  National sales to new listings ratios are back into a balanced market for the first time since 2015, leaving the wild sellers market of the last several months behind.

Prices in the GTA fell on a month over month basis and year over year were still positive but down from the peak levels posted in March.

For further info check out Dr. Sherry Cooper’s blog  http://ow.ly/qW4w30cD3iM

Crea Stats http://creastats.crea.ca/natl/index.html

So all in all, it appears that the housing market is cooling a little but not the drastic “burst of the bubble” that we feared.


Federal government may be eyeing interest rate increases.

Of course, another factor that might affect the housing market is a potential increase in interest rates.  Rate increases may cause a rethink of home purchase plans for many buyers, slowing the number of homes sold at any given time.  Although many of us have seen what a sharp drop in home purchases may have caused in the past, I feel reassured that there is control of where our interest rates are going and we should expect a managed landing.

According to Stephen Poloz from the Bank of Canada said “It’s isn’t time to throw a party, but it does suggest that the interest rate cuts we did two years ago have done their job, and that’s important to us,” Poloz said Tuesday.  http://ow.ly/185j30cDlaC

*Important signals in the economy that prove that there is widespread improvement include –

  • An upward trend in growth worldwide including positive growth in the US in investment, construction, consolidation of retail stores, low unemployment and more
  • The Canadian economy shows strength in overall job growth, exports are trending higher, Alberta has begun to recover from the oil slowdown and the wild fires
  • Canada is now leading the G7 in population growth mostly due to immigration
  • There has been a surge in business investment in Canada and BC has enjoyed the highest increases in GDP in Canada
    *With excerpts from Dr. Sherry Cooper presentation at NDLC conference June 8, 2017.  See the presentation.

There is a feeling that the current interest rates have bottomed out considering how low they have been kept and now that there is considerable improvement, even with some factors looming like the renegotiation of NAFTA, home ownership and the effects of housing on our economy may cause a positive trend towards an increase in the rates by the Bank of Canada.

19 May

Consumer’s Digest. Mortgage Newsletter for May 2017

General

Posted by: Anne Martin

 

Welcome to the May issue of my monthly newsletter which is designed to help keep you in the know regarding Real Estate and Mortgage related matters! !

This month’s edition explores the foreign buyer tax in Toronto and Vancouver and whether getting more than the asking price on a sale should be considered “found money.” You will also get an update on CMHC’s mortgage insurance premium increase.

Please let me know if you have any questions or feedback regarding anything outlined below.

Thanks again for your continued support and referrals!


Playing With ‘house money’

How much of the current record-setting price gains in several Ontario and BC markets are self perpetuating?

That is, ‘I just got paid $100,000 over asking, so now I too will pay $100,000 over asking…’ After all it is ‘found money’ – easy come easy go.

For those of you smart enough to avoid the casino, you may not be familiar with the term house money. This describes a players winnings, gambling with said winnings – with the house money rather than their own. Of course it is actually the players money, it is in their hands not the ‘houses‘, but it arrived easily and quickly and thus no deep attachment has formed – unlike with hard earned and slowly built up savings.

And we humans often take bigger chances with ‘found money’.
The effect can be seen in stock markets as well. Strong market performance will change an individuals risk tolerance profile, as profits grow so too does tolerance for risk. The opposite happens with sustained losses.
Many real estate markets are on a winning streak (winning if you already own, or bought last year, or even last week in some cases) and indeed some liken it to a casino, simply a stack of speculators running prices up.

Is it possible though that the house money effect is in play?

And if so, is the house money effect in play for typical buyers and sellers, not just for the gamblers and speculators who, in fact, make up a very small percentage of actual market activity?

The No. 1 driver of real estate purchases is new-household-formation. It’s the kids moving out, it’s pair bonding and multiplying, it’s migration from other provinces, and it’s immigration from outside Canada. New people forming new households need homes.

In 2015 during final negotiations on the sale of our then residence we increased the price by $100,000 in the 11th hour. And the buyers agreed to it… quickly. Amazing! That was the easiest $100,000 ever! Yes but…

We quickly locked down a new property, and as much as we would have liked to make an offer below the asking price, we were now buyers in a rapidly rising market. Albeit buyers flush with an extra $100,000 of ‘found‘ money.

During the purchase negotiation on the new home, reviewing comparable sales, I felt like we might be paying as much as $100,000 too much, but I took comfort in that extra $100,000 we had from the sale. Easy come, easy go.

Some months later I found myself having a frank conversation about the price adjustment with the buyers of our previous home. Sounds awkward I know, but I like difficult conversations, and as it turned out, they had received $130,000 over the asking price for their previous home – $130,000 more than they had expected to sell it for.

It was $130,000 of found money. ‘House money.‘

So the $100,000 bump in our price was not too big an issue for them to overcome.

Had the buyer of their home had a similar experience?

How many transactions back could this extra money be traced?

In any event prices have risen another 30 per cent since our purchase, putting a healthy buffer between any future softening on price and our actual purchase price, but still I wonder about the self-perpetuating effect of buyers paying an extra $50,000, $100,000, or $130,000 for their new home after getting paid a similar premium for their old home.

How big a role does the House Money effect play in perpetuating the rising prices were are enduring? It is a soft data point, intangible, not easily measured.

Yet it is a real thing.

All it takes to understand this is a few lucky hands of blackjack in a row, a few wins in a row on a slot machine, or an above-asking offer on your home.

The effect of foreign buyer tax still up in the air

On April 21, Toronto became the second Canadian city to implement a ‘foreign buyer tax’. The impact that the 15 per cent tax on residential real estate will have on the market remains to be seen. The fact remains that Toronto’s residential real estate supply remains at a 37-year low, and economics 101 taught us that reduced supply results in increased prices.

Trying to tackle the problem of rapidly rising house prices from the demand side is popular when it is a method that primarily impact ‘other people’, especially outsiders who we grant less of a right to real estate ownership. Understandably we favour locals, or at least a definition of ‘local’ that resonates with voters.

Vancouver was first to this approach in August of 2016, although the results remain unclear. The stats on the impact were skewed as many of the transactions set to close in the months following the tax were rushed to completion in the final week between the announcement of the 15 per cent tax and its actual implementation. Thereby increasing the number of transactions before the effective tax date and artificially decreasing the number of transactions after the tax date for at least 90 days.

Ninety days later we had December, a very slow month in a year for real estate. And to top it off Vancouver suffered a real Canadian winter unlike any in decades previous which literally, not just metaphorically, froze the local market for the better part of January, February and part of March. Few Vancouverites own a snow shovel, let alone have winter tires to drive around to open houses – which were not open due to the snow.

While activity in the market may have slowed significantly since the tax was introduced in Vancouver, the true impact of it will not be measurable until the end of June 2017 to compare the pretax spring market (2016) to the post tax spring market (2017).

Interestingly, Ontario Premier Kathleen Wynne would not comment on what she expects the taxes impact to be on house prices as a result of the housing plan, which contained other measures in addition to the foreign buyer tax.

One would presume for the voters owning property the desire would be for stability and perhaps a slight increase year-over-year, and for the buyers currently priced out of the market a reduction. But one cannot have both of these things together. Time will tell.

Did you know… Homeowner Tips
Spring ‘To-Do’ List:
CMHC has increased motgage loan insurance costs (insurance for the lenders, costs for you the borrower) as of March 17, 2017

The changes reflect the Office of the Superintendent of Financial Institutions (OSFI’s) new capital requirements which require mortgage insurers (CMHC, Genworth, & Canada Guaranty) to hold additional capital reserves. Capital reserves create a buffer against potential losses, helping to ensure the long term stability of the financial system.

There was much opposition from the industry that cited the long history of stability, including during the 2008 financial crisis, and the significant current cash reserves of CMHC. Nonetheless future homebuyers will pay more, a lot more.

For example homebuyers with a 15 per cent down payment, some of the least likely to every default, previously paid a 1.8 per cent of balance premium, but will now pay 55 per cent more, which is a 2.8 per cent premium.

While this may result in ‘just $5.00 more per month‘ (CMHC’s words) the average CMHC-insured loan was approximately $245,000 during 2016.

This is a $2,450 effective increase in the cost of purchasing for a 15 per cent down client. That’s $2,450 taken from the pockets of hard working Canadian families that saved up a 15 per cent down payment and had the impeccable credit history required to qualify.

A significant cost for the average Canadian family.

We will go easy on you this month with a brief ‘to-do’ list for homeowners;

 

Clean and maintain your gutters and downspouts

Address cracks. From driveways and walkways to window seals.

Tidy your outdoor space, from leftover snow shovels and sleds to attacking the budding weeds early on.

Ensure outdoor faucets, lights and plugs are all in working order.

A great time for a semi-annual furnace filter change as well.

Mix a pitcher of lemonade and sit back and enjoy a Sunny Sunday afternoon.

18 May

First time buyers are getting creative. Mortgage Market Update May 18, 2017.

General

Posted by: Anne Martin

 

MARKET UPDATE

First time home buyers are using creative strategies to obtain home ownership

  Click here to read more.


Best rates are as low as 2.59% for a 5 year fixed, variable rate prime minus .70%

*OAC  **conditions apply

This is a critical time to sit down and review your household financing needs. Please do not hesitate to contact me should you have any questions.

If you are in the market for a home, or need to refinance in the next year, it is really important to make an appointment today to find out how these changes may affect you.

**rates subject to change with market conditions – E. & O. E.


 

Terms Bank Rates Our Rates
6 Month 3.14% 3.10%
1 YEAR 3.04% 2.34%
2 YEARS 2.84% 2.14%
3 YEARS 3.44% 2.34%
4 YEARS 3.89% 2.44%
5 YEARS 4.64% 2.59%
7 YEARS 5.30% 3.14%
10 YEARS 6.10% 3.69%
Rates are subject to change without notice. *OAC E&OE
Prime Rate is 2.70%
Variable rate mortgages from as low as Prime minus .70%

 **Please note that rates shown above are subject to change without notice. The rates shown are  posted rates and the actual rate you receive may be different, depending upon your personal financial situation. “Some conditions may apply. Rates may vary from Province to Province. Rates subject to change without notice. *O.A.C. E.& O.E.” Check with your Dominion Lending Centres Mortgage Professional for full details and to determine what rate will be available for you.

*O.A.C., E.& O.E.

21 Apr

Ontario’s Premier Jump-Starts Housing Cool Down Before the Budget

General

Posted by: Anne Martin

Ontario's Housing Measures--Unintended Consequences
Premier Kathleen Wynne surprised the market yesterday by announcing sweeping measures aimed at cooling the red-hot housing market a full week before Ontario Budget Day. The sixteen-measure package is largely intended to do three things: Cool demand; boost supply; and limit the increases in rents. 

No one doubts that something needed to be done to dampen speculative fervour and increase the supply of both rental properties and non-rental housing in the GTA and surrounding areas. While home prices have been rising in the GTA for more than a decade, the price gains hit an inflection point 2016 with hyperbolic price gains, exaggerated well beyond reasonable levels took hold, spiraling to a sellers’ strike, rampant speculation and frenzied demand.

In most of the region, the inventory-to-sales ratio fell to less than one-month’s supply as speculators compete with first-time and other buyers, driving prices to the stratosphere. Potential sellers held back, expecting prices to continue to rise at a 30% annual rate. Many of these potential sellers feared they wouldn’t find a suitable place to live as speculators increasingly are willing to buy properties with negative carry as capitalization rates fell, expecting to make a fast buck in a year or two. This has been compounded by non-resident foreign purchases, much of which could well lie vacant, further reducing supply and often damaging existing neighborhoods. Moreover, the market is further inflated by nefarious activities on the part of unethical market participant–activities that include “paper flipping”, rigged bidding, double-dealing and falsified income and asset statements–not to mention reselling properties pre-construction, which is technically legal but sometimes reportedly involves kick-backs to developers.

Clearly, this frenzy is unsustainable and something needed to be done to avert a crash landing–a result that is in no one’s interest as it would dramatically slow economic activity and job growth in the province and beyond. The question is: Will the Ontario Fair Housing Plan–comprised of 16 initiatives–generate a soft landing and do the job of balancing housing and rental supply and demand.

Risks and Uncertainties

The most troubling measure is the expansion of rent controls to all rental properties built after 1991–condo or purpose built. While it is good for existing tenants, the potential unintended consequences are concerning. Rent controls diminish the supply of rental stock and have adverse implications for existing home markets as investors (and speculators) dump their properties in response to heightened uncertainty and already compressed capitalization rates. This is especially negative for the condo market as investors have often provided the seed money for new developments. Toronto suffers from a dearth of purpose-built rental properties owing to the rent controls introduced many years ago. There has been a burgeoning rise in the development of such properties over the past year or so, but expanded rent controls might cause many lenders, investors and developers to reassess their plans.

Setting the rent-control cap at the rate of consumer inflation to a maximum of 2.5% while occupied by the same tenant would in no way provide a sufficient reward to offset the risk and capital necessary to build new supply. Any developer and investor would find the risk-reward trade-off insufficient. The cost of maintaining rental property is far greater than the 2% rate of inflation as utility costs, maintenance fees and property taxes have gone up by multiples of that rate, which is roughly equivalent to the return of risk-free government bonds.

Boost Rental Supply

The measures introduced to increase rental housing supply are welcome, but limited. Rebating a portion of development charges, lowering new property taxes on purpose-built rentals, unlocking available provincial land and streamlining the approval process will help to offset some of the negative effects of rent control, but they will no way offset them fully.

Already about 70% of Canadian households own their own home, which is probably close to long-run peak levels. Younger people and incoming residents are likely to need rental housing just as builders will need to set rents at sufficiently high levels to mitigate the effect of rent control on longer-term returns on investment, making housing less affordable for the very people the measures are intended to help. But, again, it is applauded by current tenants, particularly those living in relatively new housing.

Cooling Demand

The measures intended to cool demand by dampening speculation and discouraging vacant housing are welcome. The 15% non-resident speculation tax (NRST) in the Greater Golden Horseshoe (see map below) levied on non-citizen, non-permanent residents and foreign corporations (with some exclusions) makes sense, but we have inadequate data to judge the magnitude of its effect. If Vancouver’s experience is any guide, the NRST should reduce home price inflation by some measure.

A tax on vacant housing and land will likely increase the rental supply as most of these properties are owned by non-resident foreigners.

The prevention of paper flipping or reselling properties pre-construction is welcome.

Biggest Uncertainty: In my view, the biggest quandary is the impact of this sweeping package on market psychology as it ripples through the economy. The speculators will be the first to run for the hills, reducing demand and increasing supply–which, of course, is the intended consequence. But taking that a step further, boomers who have been holding off listing their homes will call their realtors to do so promptly if they perceive markets are softening, further increasing supply. And buyers could prudently suspend their home search, at least for a while, in the hopes that prices will fall, further diminishing demand. The real question then becomes, will there be a soft- or a hard-landing. Stay tuned, we will be watching these developments very closely.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca