20 Nov

HOUSING IN FULL REBOUND

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Posted by: Jennifer Koop

OCTOBER DATA CONFIRM THAT HOUSING IS IN FULL REBOUND

Statistics released November 15th by the Canadian Real Estate Association (CREA) show that national home sales rose for the eighth consecutive month. Activity held steady in October at the relatively robust September pace following a string of monthly increases that began in March. Existing home sales are now almost 20% above the six-year low reached in February 2019, but remain 7% below the heights reached in 2016 and 2017 when many fretted over a housing bubble (see chart below).

Housing activity in roughly half of the local markets rose offset by the other half that fell. Higher sales in Greater Vancouver (GVA), the neighbouring Fraser Valley and Ottawa offset a monthly decline in activity in the Greater Toronto Area (GTA), particularly in Central Toronto, and Hamilton-Burlington.

Actual (not seasonally adjusted) activity rose 12.9% year-over-year. Transactions were up from year-ago levels in 80% of all local markets in October, including all of Canada’s largest urban markets.

All was not rosy, however. “It’s a full-blown buyer’s market or on the cusp of one in a number of housing markets across the Prairies and in Newfoundland,” said Gregory Klump, CREA’s Chief Economist. “Homebuyers there have the upper hand in purchase negotiations and the mortgage stress-test has contributed to that by reducing the number of competing buyers who can qualify for mortgage financing while market conditions are in their favour.”

New Listings

The number of newly listed homes fell by 1.8% in October, with the GTA and Ottawa posting the most significant declines. Almost a third of all housing markets posted a monthly decrease of at least 5%, while about a fifth of all markets posted a monthly increase of at least 5%.

Steady sales and fewer new listings further tightened the national sales-to-new listings ratio to 63.7%. This measure has been increasingly rising above its long-term average of 53.6%. Its current reading suggests that sales negotiations are becoming more and more tilted in favour of sellers; however, the national measure continues to mask significant regional variations.
Based on a comparison of the sales-to-new listings ratio with the long-term average, just over two-thirds of all local markets were in balanced market territory in October 2019, including the GTA and Lower Mainland of British Columbia. Nonetheless, sales negotiations remain tilted in favour of buyers in housing markets located in Alberta, Saskatchewan and Newfoundland & Labrador.

The number of months of inventory is another important measure of the balance between sales and the supply of listings. It represents how long it would take to liquidate current inventories at the current rate of sales activity.

There were 4.4 months of inventory on a national basis at the end of October 2019—the lowest level recorded since April 2017. This measure of market balance has been retreating further below its long-term average of 5.3 months. While still within balanced market territory, its current reading suggests that sales negotiations are becoming more tilted in favour of sellers.

National measures of market balance continue to mask significant regional variations. The number of months of inventory has swollen far beyond long-term averages in the Prairie provinces and Newfoundland & Labrador, giving homebuyers an ample choice in these regions. By contrast, the measure is running well below long-term averages in Ontario, Quebec and Maritime provinces, resulting in increased competition among buyers for listings and providing fertile ground for price gains. The measure is still well centred within balanced market territory in the Lower Mainland of British Columbia.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose 0.6%, marking its fifth consecutive monthly gain. Seasonally adjusted MLS® HPI readings in October were up from the previous month in 14 of the 18 markets tracked by the index. (Table below)

Recently, home price trends have generally been stabilizing in the Lower Mainland and the Prairies. While that remains the case in Calgary and Saskatoon, home prices in Edmonton and Regina continue to decline. By contrast, home price trends have started to recover in the GVA and the neighbouring Fraser Valley.

Meanwhile, price growth continues to rebound in the Greater Golden Horseshoe (GGH). In markets further east, price growth has been trending higher for the last three or four years.

Comparing home prices to year-ago levels yields considerable variations across the country, with mostly declines in western Canada and mostly price gains in eastern Canada.

The actual (not seasonally adjusted) Aggregate Composite MLS® (HPI) was up 1.8% y-o-y in October 2019, the biggest year-over-year gain since November 2018.

Home prices in the GVA (-6.4%) and the Fraser Valley (-4.2%) are still below year-ago levels, although declines are becoming smaller.

Elsewhere in British Columbia, home prices logged y-o-y increases on Vancouver Island and in the Okanagan Valley (3.1% and 2%, respectively) while having edged marginally higher in Victoria (0.5% y-o-y).

Calgary, Edmonton and Saskatoon posted price declines in the range of -1.5% to -2.5% on a y-o-y basis in October, while the gap between this year and last year widened sharply to -6.8% in Regina.

In Ontario, price growth has re-accelerated well ahead of overall consumer price inflation across most of the GGH. Meanwhile, price growth in recent years has continued uninterrupted in Ottawa, Montreal and Moncton.

Bottom Line

This report is in line with other recent indicators that suggest housing has recovered from a slump earlier, helped by low mortgage rates. The run of robust housing data gave the Bank of Canada another reason– along with healthy job gains and higher wage rates — to hold interest rates steady. However, the central bank has become more cautious in its outlook. Bank of Canada Governor Stephen Poloz, one of the few central bankers to resist the global push toward easier monetary policy, acknowledged he’s begun to consider the merits of joining other countries in lowering borrowing costs.

At a press conference after the Bank of Canada’s decision to keep the current 1.75% policy interest rate unchanged for an eighth straight meeting, Poloz said his governing council discussed the possibility of implementing an “insurance” cut to counter the global economic headwinds. But, the council decided against it because of the potential costs to such a move. These include driving up inflation already at the central bank’s 2% target and fueling household debt levels that are among the highest in the world.

“Governing Council considered whether the downside risks to the Canadian economy were sufficient at this time to warrant a more accommodative monetary policy as a form of insurance against those risks, and we concluded that they were not,” Poloz said. The Bank of Canada “is mindful that the resilience of Canada’s economy will be increasingly tested as trade conflicts and uncertainty persist.”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Article Courtesy of DR. SHERRY COOPER, Chief Economist, Dominion Lending Centres

30 Oct

WHAT THE ELECTION RESULTS MEAN FOR YOUR MORTGAGE

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Posted by: Jennifer Koop

With all the news we have seen on the election, I thought I would sum it up from a mortgage industry perspective.

What the liberal win means for your mortgage:
1. We will see the continuation of the First Time Home Buyers’ Incentive. Check out the link for more information here:
2. Property Transfer Tax modifications were on the platform, so we will await the date that change is applicable.
3. Consumers will still be able to withdraw up to $35,000 from their RRSPs as part of the government’s Home Buyers’ plan.
4. Bank of Canada Rates may not decrease as expected this year – unless there is a significant downtown in the market suddenly- based on the snapshot of recent activity that doesn’t appear as likely. It certainly makes it easier for the lenders not to pass the decrease down the line to the consumer.
5. We will likely see a national housing tax implemented in addition to the provincial ones already in place.
For items 1, 2 & 5, here is a link.
It doesn’t appear we will see any of the changes to the stress test or amortization hoped for by many.
Stay tuned for more updates and what the BOC decides to do Oct. 30 and Dec. 4.
While the constant in our market will always be change, Dominion Lending Centres mortgage professionals are here at the frontlines to help you navigate the market to your advantage and save you money. Please reach out to us with any mortgage questions on how we can help you or those you care most about.

 

Courtesy of Angela Calla, Dominion Lending Centres.

16 Sep

AUGUST DATA CONFIRM THAT HOUSING HAS TURNED THE CORNER

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Posted by: Jennifer Koop

AUGUST DATA CONFIRM THAT HOUSING HAS TURNED THE CORNER

Jennifer Koop, Dominion Lending Centres Huntsville, ON

Statistics released today by the Canadian Real Estate Association (CREA) show that national home sales rose for the sixth consecutive month. Transactions are now running almost 17% above the six-year low reached in February 2019, but remain about 10% below highs reached in 2016 and 2017. Toronto, Montreal and Vancouver all saw sales and prices rise. CREA updated its 2019 sales forecast, now predicting a 5% gain this year. Gains were led by a record-setting August in Winnipeg and a further improvement in the Fraser Valley. These confirm signs that the country’s housing market is returning to health.

Actual (not seasonally adjusted) sales activity was up 5% from where it stood in August 2018. The number of homes that traded hands was up from year-ago levels in most of Canada’s largest urban markets, including the Lower Mainland of British Columbia, Calgary, Winnipeg, the Greater Toronto (GTA), Ottawa and Montreal.

New Listings
The number of newly listed homes rose 1.1% in August. With sales and new supply up by similar magnitudes, the national sales-to-new listings ratio was 60.1%—little changed from July’s reading of 60.0%. The measure has risen above its long-term average (of 53.6%) in recent months, which indicates a tighter balance between supply and demand and a growing potential for price gains.

Based on a comparison of the sales-to-new listings ratio with the long-term average, about three-quarters of all local markets were in balanced market territory in August 2019. Of the remainder, the ratio was above the long-term average in all markets save for some in the Prairie region.

There were 4.6 months of inventory on a national basis at the end of August 2019 – the lowest level since December 2017. This measure of market balance has been increasingly retreating below its long-term average (of 5.3 months).

There is considerable regional variation in the tightness of housing markets. The number of months of inventory has swollen far beyond long-term averages in Prairie provinces and Newfoundland & Labrador, giving homebuyers an ample choice in these regions. By contrast, the measure is running well below long-term averages in Ontario, Quebec and Maritime provinces, resulting in increased competition among buyers for listings and fertile ground for price gains. Meanwhile, the measure is well centred in balanced-market territory in the Lower Mainland of British Columbia, making it likely that prices there will stabilize.

Home Prices
Canadian home prices saw its biggest one-month gain in two years. The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose 0.8% m-o-m in August 2019.

Seasonally adjusted MLS® HPI readings in August were up from the previous month in 14 of the 18 markets tracked by the index, marking the biggest dispersion of monthly price gains since last March.

In recent months, home prices have generally been stabilizing in British Columbia and the Prairies, a measure which had been falling until recently. Meanwhile, price growth has begun to rebound among markets in the Greater Golden Horseshoe (GGH) region amid ongoing price gains in housing markets east of it.

A comparison of home prices to year-ago levels yields considerable variations across the country, with declines in western Canada and price gains in eastern Canada.

The actual (not seasonally adjusted) Aggregate Composite MLS® (HPI) was up 0.9% year-over-year (y/y) in August 2019. This marks the second consecutive month in which prices climbed above year-ago levels and the most substantial y/y increase since the end of last year.

Home prices in Greater Vancouver (GVA) and the Fraser Valley remain furthest below year-ago levels, (-8.3% and -5.5%, respectively). Vancouver Island and the Okanagan Valley logged y/y increases of 3.7% and 1.5% respectively.

Prairie markets posted modest price declines, while y-o-y price growth has re-accelerated ahead of overall consumer price inflation across most of the GGH. Meanwhile, price growth has continued uninterrupted for the last few years in Ottawa, Montreal and Moncton.

All benchmark home categories tracked by the index returned to positive y/y territory in August. Two-storey single-family home prices were up most, rising 1.2% y/y. This category of homes had .been hardest hit during the slump. One-storey single-family home prices rose 0.7% y/y, while townhouse/row and condo apartment units edged up 0.3% and 0.5%, respectively.

Stress Test
Canada’s introduction of stricter mortgage-lending rules last year inhibited some potential home buyers. Until recently, declining interest rates and lower home prices may have allowed some of those buyers to return to the market, according to the CREA report.

“The recent marginal decline in the benchmark five-year interest rate used to assess homebuyers’ mortgage eligibility–from 5.34% to 5.19%–together with lower home prices in some markets, means that some previously sidelined homebuyers have returned,” said Gregory Klump, CREA’s chief economist. “Even so, the mortgage stress-test will continue to limit homebuyers’ access to mortgage financing, with the degree to which it further weighs on home sales activity continuing to vary by region.”

CREA also updated its forecasts. National home sales are now projected to recover to 482,000 units in 2019, representing a 5% increase from the five-year low recorded in 2018. The upward revision of 19,000 transactions brings the overall level back to the 10-year average, but remains well below the annual record set in 2016, when almost 540,000 homes traded hands, CREA said.

Bottom Line: This report is in line with other recent indicators that suggest housing has recovered from a slump earlier, helped by falling mortgage rates. The run of robust housing data gives the Bank of Canada another reason — along with robust job gains, higher wage rates and stronger than expected output growth in Q2 — to hold interest rates steady, even as more than 30 central banks around the world have cut interest rates further.

The Federal Open Market Committee meets again on Wednesday, and it is widely expected that they will cut rates by 25 basis points as the White House is calling for “emergency easing moves.” The Trump administration has just in the past few days succumbed to political pressure to reduce trade tensions. Trade uncertainty is the only thing right now that would derail the Canadian recovery.

As a result of this recent easing in trade tensions and last week’s cut in overnight rates further into negative territory by the European Central Bank, the flight to US Treasury bond safety diminished, raising the US and Canadian government bond yields by roughly 25 basis points from extremely low levels. Canadian 5-year bond yields at 1.48% are at their highest level in two months. In consequence, the spread between the best 5-year fixed mortgage rates and 5-year government bonds is at a very tight 77 basis points, which is likely not sustainable. A more normal spread between the two is 120-ish (or more) for the best rates and 150-plus-ish (for regular rates). Some lenders are already hiking mortgage rates.

The situation has been compounded with even more considerable uncertainty with the weekend bombing of the Saudi Aramco oil fields, taking an estimated half of all Saudi oil out of production. Stay tuned.

This post was written by DR. SHERRY COOPER, Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

16 Sep

First Time Home Buyers Incentive Program

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Posted by: Jennifer Koop

FIRST TIME HOME BUYERS INCENTIVE PROGRAM

The new First Time Home Buyer Incentive program from CMHC (Canadian Mortgage and Housing Corporation) was officially released on September 2. This program was met with mixed reactions across the mortgage industry, but we wanted to take a minute to give you the facts regarding the program. Below are the key points you need to know, and as always if you do have any further questions please reach out to us.

What is it?
Eligible homeowners are able to apply for a 5% or 10% shared equity mortgage with the Government of Canada.  A shared equity mortgage is where the government shares in the upside and downside of the property value. The Incentive enables first-time homebuyers to reduce their monthly mortgage payment without increasing their down payment. The Incentive is not interest bearing and does not require ongoing repayments.
Through the First-Time Home Buyer Incentive, the Government of Canada will offer:
• 5% for a first-time buyer’s purchase of a re-sale home
• 5% or 10% for a first-time buyer’s purchase of a new construction

It’s important to understand that with this program, the government will then OWN 5-10% of the equity of your home (pending on how much was contributed to the down payment).

Who is eligible?
First, you must be a First Time Home Buyer. This incentive is only offered to those who are purchasing their first home. Second, you need to have the minimum down payment to be eligible. The minimum down payment is 5% of the purchase price of the property, and this must come from your own resources. The Federal Government will not give you 5% to put towards/cover the entire down payment. Third, your maximum qualifying income is no more than $120,000. Lastly, your total borrowing is limited to 4 times the qualifying income.

There are restrictions on the type of property you can purchase. The below are the eligible properties:
o New construction (5-10% incentive)
o Re-sale home (5% incentive)
o New and resale mobile/manufactured homes (5% incentive)

Residential properties include single family homes, semi-detached homes, duplexes, triplex, fourplex, townhouses, condominium units. The property must be located in Canada and must be suitable and available for full-time, year-round occupancy.

How Does Repayment Work?

You can repay back the incentive in full at any time without a pre-payment penalty or you can repay the incentive after 25 years or if the property is sold, whichever happens first. The repayment of the incentive is based on the property’s fair market value:
o You are given a 5% incentive of the home’s purchase price of $200,000 or $10,000. If your home value increases to $300,000 your payback would be 5% of the current value or %15,000
o You are given a 10% incentive of the home’s purchase price of $200,000 or $20,000 and your home value decreases to $150,000, your payback amount would be 10% of the current value or $15,000.

If you are interested in this program or have further questions, we encourage you to reach out to your Dominion Lending Centres mortgage broker. This is a brand-new program and more details are coming out each day. We also are working to better understand the implications of this type of shared equity mortgage and will keep you updated on any news or updates we receive.

 

We would like to thank GEOFF LEE, Dominion Lending Centres – Accredited Mortgage Professional for writing this.

12 Mar

BANK OF CANADA CONCERNED ABOUT TRADE RISKS

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Posted by: Jennifer Koop

BANK OF CANADA CONCERNED ABOUT TRADE RISKS

The Bank of Canada held rates steady today, as expected, highlighting “trade policy developments” as an “important and growing source of uncertainty for the global and Canadian outlooks.”

As the seventh round of NAFTA negotiations commenced in Mexico City, President Trump dropped a bombshell late last week, threatening to impose a 25% tariff on imported steel and a 10% tariff on imported aluminum for national security reasons. The news reverberated around the world, causing U.S. trading partners in Europe to announce potential retaliatory actions quickly. The European Union raised the stakes for Trump by aiming levies on the GOP heartland, saying it would slap tariffs on products like Harley-Davidsons, Kentucky bourbon and Levi, bluejeans if President Trump goes ahead with his plan. Paul Ryan, Speaker of the House, is the Republican Representative from Wisconsin, headquarters of Harley-Davidsons. He immediately urged the President to stand down or ‘to be more surgical’ on tariffs. Hardliners such as Secretary of Commerce Wilbur Ross argued that any retribution would be trivial.

Well-known Republican economic advisors to the president warned that the tariff plan would do more harm than good, having adverse effects on consumers and many companies that use imported metals in the production of their products. The number of jobs lost in the auto sector and construction, for example, could be far more significant than the positive impact on the comparatively few jobs in the steel industry mainly in Pennsylvania. Prices of many products would rise including infrastructure costs, energy and food products.

Canada is ground zero in this maelstrom as the number-one exporter of steel and aluminum to the U.S., supplying $7.2 billion of aluminum and $4.3 billion of steel to the United States last year. Trump has often accused China of forcing U.S. steel and aluminum companies to fold by inundating the market with cheaper materials, but Trump thus far has refused to exclude Canada from the tariff proposal, holding Canada hostage to a favourable NAFTA deal.

Canada and the rest of the world are hoping that reasonable voices are going to prevail, but the resignation of Gary Cohen, White House Economic Adviser and formerly President of Goldman Sachs, is a victory for the protectionists (and immigration hawks). A registered Democrat, Cohn was regarded as one the few political moderates close to the president. His absence will amplify voices like Commerce Secretary Wilbur Ross and trade adviser Peter Navarro who back the president’s impulses to buck convention and pick trade fights on a global stage.

Housing Another Factor Postponing Rate Hikes

Even before the escalating trade tensions, the Bank of Canada was concerned about the impact of rising mortgage rates and new mortgage guidelines on housing, a significant contributor to the 3% growth in the economy last year. “Strong housing data in late 2017, and softer data at the beginning of this year, indicate some pulling forward of demand,” according to the Bank of Canada press release. The central bank is monitoring the economy’s sensitivity to higher interest rates, pointing out that “household credit growth has decelerated for three consecutive months.”

Inflation has edged upward to close to the 2% target. Wage growth has firmed, but even with the hike in minimum wages, the rise in compensation remains smaller than usual at full-employment.

The Bank of Canada commented once again that the economic outlook is expected to warrant higher interest rates over time, but some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential with inflation on target. The next scheduled Bank of Canada policy announcement is April 18 when the full economic outlook will be updated in the quarterly Monetary Policy Report.

To be sure, if the Trump administration goes ahead with the tariffs, the Bank will keep rates steady in April as well. Investors have pared bets on rate hikes after weaker-than-expected fourth-quarter growth, turmoil in global equity markets and the sharp decline in the Canadian dollar. Traders are not pricing in another rate hike until July according to Bloomberg News calculation on overnight index swaps. A month ago, expectations pointed to at least one increase by May. By the Bank of Canada’s measure, interest rates are still about two percentage points below what it would consider “neutral” for the economy.

 

Courtesy of Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres

30 Jan

8 THINGS YOU CAN DO TO GET THE BEST RENEWAL

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Posted by: Jennifer Koop

8 THINGS YOU CAN DO TO GET THE BEST RENEWAL

With 47 per cent of homeowners scheduled to renew their mortgages this year, 2018 is a year of change for lots of Canadians.
Here are the top 8 things you can do to get the best renewal:

1. Pull out your mortgage renewal now, and start early. When you are proactive instead of reactive you can see if there is anything on your credit score or lifestyle that we can modify to ensure you are positioned for the best renewal. You are only in a position to do this when you start early- in the last year of your mortgage you will have the most amount of options available. For example, there can be an inaccuracy in your credit report or you may be considering an income/job change that would impact your options. We can look at timing accordingly for you.

2. Do not just sign the renewal offered. Lenders can change the terms of your mortgage, and the renewal you are signing can cost you up to four per cent of your equity if you are with the wrong lender for your current life stage.

3. Most people think the best rate is the best renewal – WRONG. The terms are most important and with all terms moving or selling is the only reason most people think they would ever break a mortgage- THIS is simply not the case, a change in the interest rate market, divorce, health, job change, investment opportunity and many other reasons would contribute to a future modification being beneficial for a consumer.

4. Take into consideration lender history. The lender can have a higher prime then anyone because they know the cost to leave outweighs staying the course. The lenders are very smart with their calculated risks- and this is not something they have an obligation to disclose.

5. Remember your lender has a bias – their job is to handcuff you so they can make as much profit off you as possible- don’t be a victim.

6. Do not shop each lender on your own, it takes points off of your credit score. All lenders have different rates based on your score and you want to position yourself to get the best. By using a mortgage professional, they can shop multiple lenders protecting your credit using only one application, while the rate variation can be on average a half a percent!

7. Don’t get sucked into the online rate shopping- any monkey can post a rate online and you can drive yourself crazy looking at something that does not exists. In today’s complex mortgage market there are significantly different rates based on – insured mortgage vs uninsured mortgage, switch vs refinance, purchase or renewal, principal residence vs rental, salary or self-employed, 600 credit score or 700 credit score, amortization of 20 years to 30 years, type of property condo vs house, and leased land or freehold. The variations can mean a difference in thousands of dollars. Like diagnosing a medical condition, you can’t go online, you do have to put in the appropriate application and supporting documents to verify which options are available to you that will result in the lowest cost in borrowing.

8. Remember your mortgage is the largest debt and investment most of us have, when you contact an independent mortgage professional, we are going to invest all the work and expertise and advise you in your best interest regardless if we get your business. We may after our review advise you to stick with your existing lender, or make another recommendation for you. We are only here to enhance your finances and save you money, and there is no cost for our service.

Thank you Angela Calla, Dominion Lending Centres, for writing this article.

15 Dec

NEW MORTGAGE RULES COMING JAN 1 BOOST NOVEMBER HOME SALES

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Posted by: Jennifer Koop

NEW MORTGAGE RULES COMING JAN 1 BOOST NOVEMBER HOME SALES

So here we are in the lead-up to the January 1 implementation of the new OSFI B-20 regulations requiring that uninsured borrowers be stress-tested at a mortgage rate 200 basis points above the contract rate at federally regulated financial institutions. It is no surprise that home sales rose in advance of the new ruling. Even so, activity remains below peak levels earlier this year and prices continue to fall in the Greater Toronto Area (GTA) for the seventh consecutive month.

In a speech this week, Governor Poloz of the Bank of Canada confirmed his continued concern about household indebtedness. Indeed, data released this week by Statistics Canada showed that households continued to pile on debt in the third quarter. The household-debt-to-disposable-income ratio rose by a percentage point to 171.1% last quarter. Relative to assets and net worth, debt also edged higher, but those ratios are much closer to longer run levels, painting a far less dire picture of household finances. And even with households taking on more debt, the share of income needed to service that debt was little changed in Q3, as it has been over the last decade. That will change as the Bank of Canada continues to raise interest rates gradually. However, the prevalence of fixed rate mortgage debt means households won’t feel the increase all at once. Instead, the debt service ratio is likely to rise only gradually. The rising cost of borrowing and more stable home prices should slow credit growth in the year ahead.

But with so much attention paid to the imprudent borrower, I think it is important to reiterate that the vast majority of Canadians responsibly manage their finances. For example, roughly 40% of homeowners are mortgage-free, and one-third of all households are debt-free. Another 25% of households have less than $25,000 in debt, so 58% of Canadian households are nearly debt free. Hence, mortgage delinquency rates are meagre.

The Canadian Real Estate Association (CREA) reported yesterday that home sales jumped 3.9% from October to November–the second most significant increase in two years. Home sales have now risen for the fourth consecutive month, led by a 16% jump in the Greater Toronto Area (GTA), which accounted for two-thirds of the national rise. Even so, sales activity in the GTA was significantly below year-ago levels. Victoria, Ottawa and Regina also recorded strong gains, while Calgary, Edmonton and Montreal posted modest increases.

Not all markets participated in the rally, though. Vancouver was among the few holdouts. Resales fell for a second-straight month by 3.7% in the Vancouver area where affordability strains represent a major issue for buyers.

New Listings Shot Up

Many sellers decided to list their properties ahead of the mortgage rule changes. New listings rose by 3.5% in Canada between October and November. Most of this increase took place in the Toronto area where new listings jumped by a whopping 22.9%. A report released earlier this month by the Toronto Real Estate Board showed that active listings in Toronto rose modestly above their 10-year average in recent months after plunging to historic lows at the start of this year. Pressure has come off Toronto-area buyers as they are now presented with more options. This could soon be the case in Vancouver too. New listings rose sharply in November and, with resales declining in the past couple of months, the sales-to-new listings ratio is finally moving toward more balanced conditions (see charts below).

The number of months of inventory is another important measure of the balance between housing supply and demand. It represents how long it would take to liquidate current inventories at the current rate of sales activity. There were 4.8 months of inventory on a national basis at the end of November 2017 – down slightly from 4.9 months in October and around 5 months recorded over the summer months, and within close reach of the long-term average of 5.2 months. At 2.4 months, the number of months of inventory in the Greater Golden Horseshoe region is up sharply from the all-time low of 0.8 months reached in February and March.

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Price Pressures Eased

The Aggregate Composite MLS® Home Price Index (HPI) rose by 9.3% y-o-y in November 2017 marking a further deceleration in y-o-y gains that began in the spring and the smallest increase since February 2016. The slowdown in price gains mainly reflects softening price trends in the Greater Golden Horseshoe housing markets tracked by the index, particularly for single-family homes.

Toronto single-family house prices were down 11.6% over the past six months ending November 30 (see chart below). GTA condo prices have fared better, up 0.3% since late May, but the rise is minuscule in comparison to the booming price gains evidenced before the Ontario government’s ‘Fair Housing Plan’ that introduced, among other things, a 15% tax on non-resident foreign purchases of homes.

 

On a year-over-year basis, benchmark home prices were up in 11 of the 13 markets tracked by the MLS HPI. After having dipped in the second half of last year, benchmark home prices in the Lower Mainland of British Columbia have recovered and now stand at new highs (Greater Vancouver: +14% y-o-y; Fraser Valley: +18.5% y-o-y). Benchmark home prices rose by about 14% on a y-o-y basis in Victoria and by 18.5% elsewhere on Vancouver Island in November, on par with y-o-y gains in October.

Price gains have slowed considerably on a y-o-y basis in Greater Toronto, Oakville-Milton and Guelph but remain above year-ago levels (Greater Toronto: +8.4% y-o-y; Oakville-Milton: +3.5% y-o-y; Guelph: +13.4% y-o-y).

Calgary benchmark home prices remained just inside positive territory on a y-o-y basis (+0.3%), while prices in Regina and Saskatoon were down from last November (-3.5% y-o-y and -4.1% y-o-y, respectively).

Benchmark home prices rose 6.7% y-o-y in Ottawa, led by a 7.6% increase in two-storey single-family home prices, by 5.6% in Greater Montreal, driven by an 8.3% increase in prices for townhouse/row units, and by 4.6% in Greater Moncton, led by a 7.8% increase in one-storey single-family home prices. (see table below)

The MLS® Home Price Index provides the best way of gauging price trends because average price trends are prone to be strongly distorted by changes in the mix of sales activity from one month to the next.

The latest on the national housing numbers from @DLCCanadaInc Economist @DrSherryCooper:

27 Oct

Bank of Canada on Sidelines, as Expected – Dominion Lending Centres

Latest News

Posted by: Jennifer Koop

BANK OF CANADA ON SIDELINES, AS EXPECTED

 

BOC Will Raise Rates Only Cautiously

Our own Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres reports:

The Bank of Canada held overnight interest rates at 1.0% following two consecutive rate hikes at the July and September meetings. It was widely expected that the Bank would take a breather this round. The central bank also released its quarterly Monetary Policy Report (MPR) today, in which it forecast that growth would be 3.1% this year, 2.1% in 2018 and 1.5% in 2019. The rapid pace of economic growth over the past four quarters surprised the Bank on the high side. Going forward, the Bank forecasts GDP to moderate to a more sustainable pace.

Exports and business investment are expected to contribute to growth over the forecast horizon. In contrast, “housing and consumption are forecast to slow in light of policy changes affecting housing markets and higher interest rates.” The Bank went on to say that “because of high debt levels, household spending is likely more sensitive to interest rates than in the past.” I would go one step further and suggest that higher sensitivity to interest rates is all the more so because of the OSFI stress testing of borrowers at 200 basis points above current contract mortgage rates.

The central bank continues to expect global growth to average roughly 3.5% over the 2017- 2019 period, noting that uncertainty remains high regarding geopolitical developments and fiscal and trade policies. Notably, the renegotiation of NAFTA will have a meaningful impact on the economies of North America, but given the uncertainty, the Bank economists have left this factor out of the base case projection.

Measures of core inflation have edged up as expected, but the Bank now forecasts that inflation will rise to 2% in the second half of 2018, which is a bit later than anticipated in the July MPR reflecting the recent strength in the Canadian dollar.

Business investment contributes to increases in capacity and productivity; hence the Bank of Canada now assumes that annual growth of potential output is 1.5% over 2018-19, which is slightly above the assumption since April 2017. How fast the economy can grow without triggering inflation is a big issue these days. The central bank will publish a full reassessment of this critical point in April 2018. The higher the level of potential growth, the lower the estimated level of the “neutral” nominal policy rate–the level of the overnight rate that is consistent with the Bank’s target of 2% inflation. The Governing Council of the Bank of Canada now estimates the neutral rate to be between 2.5% and 3.5%. The Bank’s economic projection is based on the midpoint of this range– 3.0%. In other words, the Governing Council of the Bank of Canada estimates that it will ultimately raise the policy rate from the current level of 1.0% by 200 basis points to 3.0% once the economy is at full employment. That is a substantial proportional jump in rates, which would undoubtedly slow interest-sensitive spending, and nothing is more interest-sensitive than housing. Which makes you wonder why the financial institutions’ regulator (OSFI) has been so intent on further tightening mortgage credit conditions.

The tone of today’s policy statement was decidedly more dovish–cautious about future rate hikes–than in July and September. Why is that? Firstly, the Bank came under a good deal of criticism for hiking rates more rapidly than expected, reversing the two rate cuts implemented (unexpectedly) in 2016. Secondly, the Bank sees significant risks to the outlook. These risks are delineated in the MPR as follows:
• A shift toward greater protectionist trade policies in the U.S. that weaken Canadian exports
• A more substantial impact of structural factors (Internet, digitization, robots) and prolonged excess supply on inflation (higher potential growth)
• Stronger real GDP growth in the U.S. (owing to prospective deregulation and tax cuts)
• Stronger consumption and rising household debt in Canada
• A pronounced drop in house prices in overheated markets

The Bank of Canada sees the risks to the inflation outlook as balanced–in other words, it is just as likely for inflation to move above forecasted levels as below them. Hence, the Bank will be cautious in raising interest rates in the future and their actions will be data dependent. In their words, “while less monetary policy stimulus will likely be required over time, Governing Council will be cautious in making future adjustments to the policy rate. In particular, the Bank will be guided by incoming data to assess the sensitivity of the economy to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation. “

27 Oct

TIME TO LOCK IN A VARIABLE RATE MORTGAGE?

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Posted by: Jennifer Koop

TIME TO LOCK IN A VARIABLE RATE MORTGAGE?

Approximately 32 per cent of Canadians are in a variable rate mortgage, which with rates effectively declining steadily for the better part of the last ten years has worked well.

Recent increases triggers questions and concerns, and these questions and concerns are best expressed verbally with a direct call to your independent mortgage expert – not directly with the lender. There are nuances you may not think to consider before you lock in, and that almost certainly will not be primary topics for your lender.

Over the last several years there have been headlines warning us of impending doom with both house price implosion, and interest rate explosion, very little of which has come to fruition other than in a very few localized spots and for short periods of time thus far.

Before accepting what a lender may offer as a lock in rate, especially if you are considering freeing up cash for such things as renovations, travel or putting towards your children’s education, it is best to have your mortgage agent review all your options.

And even if you simply wanted to lock in the existing balance, again the conversation is crucial to have with the right person, as one of the key topics should be prepayment penalties.

In many fixed rate mortgage, the penalty can be quite substantial even when you aren’t very far into your mortgage term. People often assume the penalty for breaking a mortgage amounts to three months’ interest payments, which in the case of 90% of variable rate mortgages is correct. However, in a fixed rate mortgage, the penalty is the greater of three months’ interest or the interest rate differential (IRD).

The ‘IRD’ calculation is a byzantine formula. One designed by people working specifically in the best interests of shareholders, not the best interests of the client (you). The difference in penalties from a variable to a fixed rate product can be as much as a 900 per cent increase.

The massive penalties are designed for banks to recuperate any losses incurred by clients (you) breaking and renegotiating the mortgage at a lower rate. And so locking into a fixed rate product without careful planning can mean significant downside.

Keep in mind that penalties vary from lender to lender and there are different penalties for different types of mortgages. In addition, things like opting for a “cash back” mortgage can influence penalties even more to the negative, with a claw-back of that cash received way back when.

Another consideration is that certain lenders, and thus certain clients, have ‘fixed payment’ variable rate mortgages. Which means that the payment may at this point be artificially low, and locking into a fixed rate may trigger a more significant increase in the payment than expected.

There is no generally ‘correct’ answer to the question of locking in, the type of variable rate mortgage you hold and the potential changes coming up in your life are all important considerations. There is only a ‘specific-to-you’ answer, and even then – it is a decision made with the best information at hand at the time that it is made. Having a detailed conversation with the right people is crucial.

It should also be said that a poll of 33 economists just before the recent Bank of Canada rate increase had 27 advising against another increase. This would suggest that things may have moved too fast too soon as it is, and we may see another period of zero movement. The last time the Bank of Canada pushed the rate to the current level it sat at this level for nearly five full years.

Life is variable, perhaps your mortgage should be too.

As always, if you have questions about locking in your variable mortgage, or breaking your mortgage to secure a lower rate, or any general mortgage questions, contact a Dominion Lending Centres mortgage specialist.

We would like to thank Tracy Valko – Dominion Lending Centres for writing this piece.