Rising rates not enough to deter Canadians' home buying plans
by Ephraim Vecina 04 May 2018 MBN
In a new report released earlier this week, BMO noted that the prospect of rising interest rates does not appear to be discouraging Canadians sufficiently from buying homes. 23% are still planning to purchase their primary residences in the next year, for an average expected price of $474,000, with the largest markets averaging $580,000 (Toronto) and $603,000 (Vancouver).
76% of Canadians polled nationwide indicated a belief that interest rates will go up soon and continue to rise, but 53% have stated that they are not preparing for the hikes by stress-testing their mortgages.
Conversely, in the red-hot markets, 53% of buyers based in Ontario and 51% in British Columbia will stress test their mortgages to ensure that they can afford their financial commitments. This is in contrast to a maximum average of only 40% across all other regions.
Read more: Canadians remain afloat, for now
“For the first time in years, interest rates are beginning to rise – making it increasingly important for Canadians looking to buy a home to stress-test their mortgage against a higher rate to ensure they can afford it over the long term,” BMO head of personal banking Martin Nel said.
“Even moderate increases in interest rates, like the two additional quarter-point rate hikes that we expect from the Bank of Canada this year, can erode affordability in high-priced regions,” BMO Capital Markets senior economist Sal Guatieri added. “Given that rates have been historically low for a while and are not expected to increase dramatically, borrowers may not see the need to stress test. But they should at least plan for a worse-case scenario that involves a material increase in borrowing costs.”
Related stories: BoC’s Poloz unapologetic about cautious approach to hikes, TD Bank raises mortgage rates amid record-high bond yields
Government remedies oversight
by Neil Sharma 03 May 2018 MBN
The Ministry of Finance has remedied a significant regulatory oversight that precluded low-risk borrowers from insurable mortgage rates simply because they refinanced after a certain date.
“A communication was sent to all the lenders from CMHC and Genworth that, effective Monday [April 30, 2018], any refinance after November 2016 can be switched or transferred to a new lender and qualify for insurable mortgage rates,” said mortgage broker and Principal of Champion Mortgage Doug Adlam.
Borrowers who refinanced their mortgages after November 2016 could not qualify for insurable mortgage rates upon renewal, inauspiciously leaving them the options of remaining with their institution or moving onto a better one with no discernible rate advantage. However, Adlam and a small group of brokers, lenders and insurers lobbied the government to fix the flub.
“It’s a huge win for Canadians and it truly shows the benefit of mortgage brokers, lenders and insurers in the Canadian industry, who totally, completely and always look out for the best interests of Canadians,” said Adlam. “I really think Canadians forget what interest rates looked like before the brokering industry grew. Interest rates on average would be about 1.5% higher than they are today. It goes to show that, from day one, mortgage brokers have been trying to bring down the façade of posted interest rates.”
It isn’t often that government walks back its own fiat, and while no admission of blundering accompanied the communication that outlined the new rules, responsible borrowers will no longer be penalized.
“On the one hand, I am surprised because, typically, when they make a change they stand by it,” said Adlam. “On the other hand, the Ministry of Finance wants to ensure that Canadians are well-protected and ensure that people with those lower-risk loans who renew their mortgages have the benefit and the opportunity to seek insurable and, therefore, lower interest rate mortgages now and into the future. It’s just disappointing that there have been borrowers that had to renew into high interest rates while this initial oversight had to be reclarified.”
In a statement provided to Mortgagebrokernews.ca, CMHC—which, along with Genworth Financial and Canada Guaranty, pressed the Ministry of Finance for clarification on the rule—says purchase transactions are presently the only permitted loan purpose, although caveats do apply.
“A refinance loan, defined as an increase to the outstanding balance or extension of the original amortization, is not a permitted loan purpose,” reads the statement.
“At the borrower’s request, a mortgage may be switched from one lender to another, and be eligible for mortgage loan insurance, provided that the new lender does not refinance the mortgage at time of the switch/transfer and meets other insurability criteria per the Insurable Housing Loan Regulations… In the case of a dissolution of relationship/buyout of a co-borrowers interest in the property, funds required to acquire the departing co-borrower’s interest in the property would be eligible for mortgage loan insurance.”
Related stories: Headache looms for borrowers because of oversight, Canadians remain afloat, for now
Majority of young Ontarians feel home ownership is unattainable
by Ephraim Vecina May 2018 MBN
The results of a new study conducted by Nanos Research Corporation for the Ontario Real Estate Association (OREA) showed that despite the provincial government’s plan to help make residential properties more affordable, 68.5% of young Ontarians agree or somewhat agree that home ownership remains unaffordable in their neighborhood.
OREA stated that the research underlines the importance of affordable home ownership among voters who will participate in June’s provincial election this June. Fully 7 in 10 Ontarian millennials agree or somewhat agree that they are more likely to vote for a political party that is committed to helping them own homes.
“The dream of home ownership is slipping away for an entire generation of young people,” OREA CEO Tim Hudak said. “Nearly half of Ontarians between the ages of 25 and 34 are still living at home with their parents. These are people who’ve done everything right – gone to school, worked hard, paid down their student loans – yet they’re struggling to take that next step in life to own a home. We need action to address this problem.”
Read more: Millennials to lead the charge in a future surge of home purchases – poll
78% of Ontario’s millennials agree or somewhat agree that the government needs to do more to help young people overcome the housing affordability hurdles. Saving enough for the down payment is the most significant obstacle to owning a home for 41% of young Ontarians, followed by getting a mortgage approved at 22%.
Moreover, the problem extends beyond the young cohort. 58.7% of non-millennials in the province agree or somewhat agree that home ownership is unaffordable in their neighborhoods.
“To date, most government action has been around higher taxes or making a mortgage more expensive - none of this is helping people get into the housing market,” Hudak explained. “It is time to take a different path. Keeping home ownership within reach comes down to increasing housing supply in Ontario, particularly ‘missing middle’ housing, like townhomes and mid-rises, and providing first time home buyers with some relief like increasing the first-home buyer tax rebate and helping with down payments.”
Related stories: Millennial demand, economic strength continue to push prices upward – report
Canadians' support for housing measures, stress tests remains high – poll
by Ephraim Vecina 2018 MBN
The results of the latest study conducted by real estate information portal Zoocasa revealed that consumer support for government measures that address the impact of foreign buyers on Canadian real estate prices remains high.
Fully 70% of respondents from Ontario still support the foreign-buyer taxes required by the province’s Fair Housing Plan, a year after its introduction. Support is also at a strong 77% in British Columbia, which has imposed a similar tax.
On a nationwide scale, 64% of Canadians polled support the presence of a tax on foreign buyers. 59% believe that foreign buyers are driving up real estate prices in their city.
Meanwhile, support for such levies was lowest in Quebec at 47%. Atlantic Canadians expressed the greatest disagreement to the notion that foreign buyers are pushing up real estate prices, with just 30% agreeing.
Read more: IMF projects slower economic growth for Canada
More than a quarter after the Office of the Superintendent of Financial Institutions implemented the tighter mortgage stress test, 52% of Canadians still express support for the measure. 24% disagree, while 24% remain unsure.
47% of those polled say that the new stress test protects the Canadian economy, while 20% disagree and 33% remain unsure.
A considerable number (48%) say that the stress test makes life more difficult for first-time buyers in Canada, however. 25% disagree, while 27% remain unsure.
12-month housing market downturn risk remains low – RBC Economics
by Paolo Taruc Apr 2018 MBN
The risk of a housing market downturn over the next 12 months remains low – but the probability has slightly increased because of volatility introduced by the recently implemented stress test for uninsured mortgage, according to a recent report by RBC Economic Research.
In particular, the research group said the volatility has eroded the near-term risk profile of major markets including Toronto, Vancouver and Calgary. But none of these appear in danger of an imminent downturn.
RBC Economics said the Toronto market is healthier now compared to a year ago, when it was “clearly overheated.” The market there is now balanced and still well-supported by economic and demographic fundamentals, and there are few signs of overbuilding.
The research group praised the Montreal market for its generally positive risk profile – demand-supply conditions have tightened and because of the strength of the local economy. Prices are also rising at a moderate pace.
Meanwhile, RBC Economics warned against Vancouver’s “extremely poor” affordability. The market-cooling measure announced in the province’s 2018 budget and the mortgage stress-test pose near-term risks there, it added.
An “uneven” market recovery was observed in Calgary, amid high condo inventories and slower population growth. But RBC Economics added that rising oil prices should boost sentiment and return the market on an upward trajectory.
Related stories:
BoC's Poloz unapologetic about cautious approach to hikes
Canadians might be headed straight towards deep debt traps – analyst
Robust market fundamentals buoy investments
by Neil Sharma 26 Apr 2018 MBN
Editor: While this article focuses on Toronto it is as applicable to Ottawa.
While nearly half of Toronto’s condo investors were in the red last year, the city’s condominiums remain among the best real estate investments in the country.
“With real estate, including condos, you make money in three different ways: Your net cash flow each month, but more importantly, each month, roughly half your mortgage payment goes towards your principal, so you are building wealth by paying down the principal in your mortgage, and that happens every month you make a mortgage payment; and then there’s appreciation,” said CanWise Financial’s President and Broker of Record James Laird.
“No one knows what appreciation is going to be, but the average has been good and some years it’s been amazing. Even if your cash flow month-to-month might be slightly in the red, the overall investment is still increasing your wealth each year.”
A joint study between CIBC and Urbanation revealed 44% of Toronto’s condo investors were in the red—of which 45% were short by less than $500, and 20% between $500 and $1,000. The reintroduction of rent control has proven another spanner in the works for landlords.
However, according to Laird, Toronto’s market fundamentals are so strong that condos will continue surging in value. In the last year, they appreciated more than any other housing type, and on top of robust economic conditions, skilled immigrants continue choosing to live in Canada—and Toronto in particular.
“The rental market in Toronto is really strong,” said Laird. “The average rent has climbed dramatically in the last few years and the vacancy is low. It’s a good time to be a landlord in Toronto, and if you’re occupying it yourself, you should do well on your investment. The funny thing about rent control is that it has dissuaded many new condominiums from being built, so the supply is going to continue to be pinched in future years. At the end of the day, it will be supply and demand which determines the average rent in Toronto, and the growth and demand looks like it should be strong here. It doesn’t look like the supply side will keep up, and those are good ingredients to own that kind of asset.”
According to Tribe Financial Managing Partner Frances Hinojosa, investors can avoid certain pitfalls with firm financing conditions because bully offers are commonplace throughout the condo market right now, and that could, in tandem with condo fees, render the investment flawed.
“I can’t stress the importance of still doing a condition of financing to ensure you’re not overpaying and to make sure that property is marketable to the lender,” she said. “Some condos in Toronto are having issues with their status certificates, so there should be a condition of not only financing but review of the status certificate.”
Due diligence done, unflagging demand for condos ensure they’re sound investments.
“We’re at a 16-year low for vacancies right now and rentals are still in high demand in Toronto because of population,” said Hinojosa. “It will continue to grow, and the simple question is where are all these people going to live? Is it a long-term viable option? Yes, because you can’t create more land and the population is not going to stop growing.”
Canada's median home price rises 6.2% in Q1 2018
by Paolo Taruc 20 Apr 2018 MBN
Canada’s median home price rose by an annualized 6.2% to $605,512 in the first three months of 2018 despite corrections in the Greater Toronto Area and Greater Vancouver, according to a recent survey by Royal LePage.
Demand dipped and prices softened as government measures have restricted access to mortgage financing and affordability eroded, the firm said. "We are experiencing a broad-based, residential housing correction in Canada, triggered by federal and provincial intervention," said Phil Soper, president and CEO, Royal LePage. "Strong house price gains in the first half of 2017 mask some of the recent market shifts when comparing year-over-year home value trends.”
When grouped by housing type, the median price of a two-storey home rose 5.7% year-over-year to $715,726, while the equivalent figure for a bungalow climbed 4.5% to $501,985. Condominiums saw the highest price appreciation rates, at 10.3% to reach $418,245, driven by significant year-over-year price gains in the country's largest housing markets.
New mortgage rules by the Office of the Superintendent of Financial Institutions (OSFI) took effect at the start of the year – including a financing stress test for borrowers with uninsured loans. Royal LePage saw national and regional sales activity levels fall at the outset of the quarter, as buyers may have solidified their purchases in 2017, before the rules took effect.
"The combination of declining affordability and government intervention has for the most part neutralized very high home price appreciation levels in the greater Vancouver and Toronto regions, relative to the extreme heights witnessed in recent periods," said Soper. "However, those looking for this slowdown to translate into material year-over-year home price drops shouldn't hold their breath. The demand for housing is so strong that the rate of home price appreciation is expected to pick up again in the second half of 2018."
Related stories: Affordable homes are becoming less so – CREA
Bank of Canada's interest rate announcement hinged on untenable factors
by Neil Sharma 19 Apr 2018 MBN
The Bank of Canada decided not to increase the interest rate yesterday amid slower-than-expected GDP growth caused, in part, by a cooled housing market and nebulous NAFTA negotiations.
“We were expecting the real estate market to soften after the changes in January, and real estate plays a large part in Canada’s GDP,” said Dalia Barsoum, president and principal broker of Streetwise Mortgages. “So I’m not surprised they didn’t increase the rate because growth in the first quarter wasn’t there. Growth was below expectations primarily because of the softening real estate market.”
The GDP only grew 1.3% through Q1—falling well short of the 2.5% prediction—impelling the Bank of Canada to keep the interest rate still at 1.25%.
The at-times acrimonious negotiations to reconfigure the North American Free Trade Agreement also appear to have influenced the Bank of Canada’s Wednesday decision.
Spring is usually the real estate market’s most frenzied season of the year, but even a rebounded market through Q2 likely won’t be enough to catalyze enough GDP growth for a rate increase.
“Other factors are at play—we’ve got exports, what’s going on in with the trade negotiations, and how inflation is looking, so we may see activity on the real estate side in Q2, but there is a lot of uncertainty around trade at the moment, and in my view, it will depend on how that looks,” said Barsoum.
“A big component of our GDP is exports, and our biggest relationship is with the U.S. when it comes to exports and imports, and if NAFTA doesn’t go well these things will be impacted. Right now NAFTA is on life support. If it’s revived then it will go well, otherwise we’ll still be in a shaky boat on that end.”
But that doesn’t mean the interest rate will not be hiked between now and year’s end. While the situation is touch and go, Barsoum expects the rate hike to occur during the third quarter of 2018.
“I think by the end of the year there will be one more rate increase, probably in the third quarter, but at this point Q1 looks rougher than what was expected initially. “
McKay Wood, a mortgage broker with Verico Mortgage Pal, is glad the Bank of Canada didn’t hike the interest rate.
“I was hoping that it wouldn’t go up because I’m in the variable camp myself,” he said. “I thought that we’d still have stability. I didn’t want it to go up, but even if it did go up, the trend is trickling upwards, so if it came this time or next time, or the next, it will come. I was delighted that I didn’t have to get bombarded by calls from clients.”
Related stories:
Higher rates putting greater pressure on indebted Canadians
Canadians might be headed straight towards deep debt traps – analyst
Affordable homes are becoming less so – CREA
by Ephraim Vecina17 Apr 2018
The most affordable segments of Canada’s housing market are seeing the biggest price hikes as recent changes to mortgage regulations fuel demand for lower-priced homes such as condominiums, according to the Canadian Real Estate Association.
The tighter mortgage lending rules, which have made it harder for home buyers to qualify for uninsured mortgages, are also shrinking the pool of qualified buyers for higher-priced homes, CREA chief economist Gregory Klump told The Canadian Press.
“Given their limited supply, the shift of demand into lower price segments is causing those sale prices to climb,” Klump stated. “As a result, ‘affordably priced’ homes are becoming less affordable while mortgage financing for higher priced homes remains out of reach of many aspiring move-up home buyers."
Royal LePage CEO Phil Soper said the new stress test for uninsured mortgages has disrupted the flow of move-up home buyers looking to upgrade from their entry level home or move to a more desirable location.
“That cycle has been interrupted with the OSFI stress test, because it impacts the ability to move up,” Soper explained. “The question is, is it temporary, or will it actually take demand out of the market permanently? I believe it’s temporary.”
Home sales across the country have dropped in the wake of several government policy measures, including a stress test for home buyers with a down payment of more than 20%, that were implemented to cool the country’s hot housing market.
The number of Canadian homes sold in March plunged 23% and the national average price was down 10% from the same month last year amid double-digit plunges in most housing markets across the country. CREA said the level of sales activity marked a four-year low for the month of March and was 7% below the 10-year average.
Read more: Millennial demand, economic strength continue to push prices upward – report
Sales prices are slipping too, with the national average price for all types of residential property down to about $491,000, down 10.4% from March of last year, with the Vancouver and Toronto markets causing most of the drag.
Excluding Canada’s two most expensive real estate markets, the national average price would be $383,000, representing a 2% decline from March 2017.
But a closer look at the different housing segments reveals a mixed landscape, with lower-priced homes showing the largest gains.
Apartment units posted the largest year-on-year price gains in March, up 17.8%, followed by townhouse/row units at 9.4%. One-storey single family homes saw price gains in March of just 1.3%, and two-storey single family home prices were down 2% from a year ago, CREA said.
“The housing market continues to adjust to stricter mortgage rules, recent Bank of Canada rate hikes, and some provincial policy moves,” BMO Capital Markets’ senior economist Robert Kavcic wrote in a research note last week. “While we’re seeing some signs of stability, the adjustment likely has some time yet to go.”
When one of you wants to keep the marital home…
A Spousal Separation Mortgage allows financing to 95 per cent!
It’s hard enough to get through the process of splitting assets in the event of a separation or divorce. What if one of you wants to keep the family home?
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Although mortgage rules mean you can only refinance your home to 80 per cent of the value, a Spousal Separation Mortgage allows a buyout to 95 per cent, making it easier for one spouse to keep the home.
This new mortgage can provide a fair buyout, and possibly pay off other joint debt.
When one of you wants to keep the marital home… make us one of your first calls.
We may be able to help clear some of the financial hurdles. We’ll guide you through the process, structuring the mortgage for the buyout of one spouse, and then help the other spouse with the purchase of a new home as well.
We believe that your home can be the asset that gives both partners a fresh start!
NOTE:
You are able to get best rate that is available at the time.
You will need all the normal paperwork for a mortgage application and a purchase and sale agreement that states the buy out amount.
Funds cannot be used to pay off any personal debt or for spending money.