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Interest rate could hit 6% by 2020


 
by Neil Sharma Oct 2018 MBN

Interest rates could hit 6% by 2020, according to Moody’s Analytics.

The prediction, using RPS data, is based on policymakers realizing plans to quell housing bubbles in Toronto and Vancouver, as well as on rising interest rates.

“Two macroeconomic projects now dominate housing markets in Canada,” said Andres Carbacho-Burgos, a Moody’s economist. “The first is that the [Bank of Canada] will continue to tighten short-term interest rates through 2020 in order to head off inflation and also maintain the value of the Canadian dollar relative to its U.S. counterpart.

“With some lag, monetary tightening will pull up mortgage rates. The five-year mortgage rate is now at about 4.4% after bottoming out at 3.6% in mid-2017; the Moody’s Analytics baseline projection is that it will continue to increase until it levels off at about 6% in late 2020.”

Prolonged North American Free Trade Agreement negotiations have only deferred the Bank of Canada’s rate hiking mandate, but with the federal government this week finalizing a new deal, the United States-Mexico-Canada Agreement, there will almost certainly be a hike on Oct. 24.

“Overall, when it comes to the new USMCA, it’s going to affect the housing market because interest rates are bound to go up,” said Samantha Brookes, founder of Mortgages of Canada. “The Bank of Canada was holding back the rate until there was an agreement. Now, we’ll get increases based on the way the economy has been performing, and what that means for Canadians is interest rates will go up and prices will continue to adjust.”

That will likely make conditions favourable for buyers as the market continues recovering from the shock of so many changes.

“I believe it will probably take until 2020 until we see some light at the end of the tunnel,” she said. “But that’s based on the correction that’s been happening over the last year. People need to be more creative with how they’re purchasing.”

This could give further rise to co-ownerships in the housing market.

“It’s becoming more and more popular,” said Brookes. “Be creative and you’ll still be able to get in. We all know real estate is still the number one investment, and it will be time to hold onto that investment rather than flipping it for a quick buck. It’s too risky for that right now, so buy and live in your home for a few years until the market corrects.”

Tories plan to make B-20 election issue


 
by Neil Sharma 01 Oct 2018 MBN

The Conservative Party of Canada will make B-20 a hot button issue during next year’s election.

The party’s Deputy Shadow Minister for Finance has already tabled two motions, both of which were rejected by the Liberals, to study B-20’s effects. Refusing to go quietly, MP Tom Kmiec has vowed to put the mortgage stress test back on the agenda in time for the Oct. 2019 federal election.

“It will be an election issue, absolutely,” Kmiec told MortgageBrokerNews.ca. “I’m willing to use procedural tools to get this study done. I’m not necessarily saying to get rid of B-20 completely; I’m saying take a look at the data and then make a decision on it. I’m asking the Liberals to provide any internal documents they have showing why the mortgage rules were introduced in the first place.”

With the Bank of Canada raising interest rates, mortgage qualification has become even more onerous and Kmiec says it’s only going to get worse.

“This is an affordability issue. The Bank of Canada is raising interest rates, and I don’t fault them for it, but rules like B-20, and then provincial rules, are compounding and making it unaffordable for young people to get into their first home,” he said.

“There was a 63% jump in mortgage originations among 73- to 93-year-olds in the first half of this year, which is unusual for the pre-war generation to suddenly take out a whole bunch of mortgages for no apparent reason after B-20 was introduced. It only makes sense when you notice that mortgage originations among millennials are down 19% and Generation Z mortgage originations are down 22%. Are the B-20 mortgage rules causing Canadians to go to their grandparents to take out mortgages for them in their names?”

If that is indeed the case, Kmiec notes that, in the event of a grandparent’s death, messy estate complications will ensue.

According to Victor Peca, a mortgage broker and founding partner of Monarch Mortgage Group, the Liberal Party has deluded itself into believing B-20 is impacting the country positively. However, that isn’t the worst of it.

“The B-20 rules aren’t working because I see a lot more deals coming to me with fraud,” said Peca. “B-20 isn’t stopping that; it’s making it more pronounced because it’s harder to get a mortgage. When someone wants to buy a home, they’ll do whatever it takes to get that picket fence.”

Kmiec has started a website to pressure the Liberals into studying B-20’s effects. He claims the Liberals told him B-20 wouldn’t be examined without more data, which he says has since become plentiful. Having participated in filibustering the electoral reform committee, the Liberals might have underestimated Kmiec’s resolve, not to mention indefatigability.

“If it comes down to it, I’m happy to use up every two-hour time limit on every single committee until we agree to do a mortgage study,” said Kmiec. “I’m not asking for the moon, either. All I want are a few meetings in Ottawa where we can invite people with data who can then tell us what’s happening with the market.”
 
Related stories:
OREA joins chorus calling for stress test’s annulment
Government declines B-20 subcommittee to avoid embarrassment, claims industry vet

Canada’s oldest home owners are on a mortgage spree


 
by Ephraim Vecina Sep 2018 MBN

Reports of Canadians’ debt difficulties abound, but if the latest data from TransUnion is any indication, the eldest don’t seem to be slowing down in their borrowing any time soon.

TransUnion findings revealed that in the first quarter of 2018, the volume of mortgages issued to Canadians in the 73-93 age bracket dramatically increased by 63% on a year-over-year basis.

To compare, activity in the baby boomer demographic (54-72 years old) went up by a relatively meek 18%. Millennials and first-time home buyers had it significantly worse, with originations down by 19% in the 24-38 segment and 22% in the 18-23 age bracket.

TransUnion Canada director of financial services research and consulting Matt Fabian noted that these numbers might indicate the more pronounced impact of harsher mortgage rules among younger buyers.

Read more: Canada’s seniors prefer to stay put in their homes – poll

“The stress-testing rules are about affordability,” Fabian told Global News, adding that the oldest Canadian home owners have benefited from substantial equity gains in recent years, and thus don’t have to worry much about numbers such as loan-to-value ratios.

However, despite the vibrant borrowing among the elderly, this demographic still accounts for a miniscule portion of total Canadian mortgage activity. Overall new mortgage volume in Q1 2018 still declined by 3.4% year-over-year, following a more serious 8% annual shrinkage in the period between October and December 2017.

Related stories:
Survey reveals seniors’ feelings about selling their homes
‘Lifestyle mortgages’ for savvy seniors

ARMCHAIR MAYOR: York Plaza could be a great civic square


 
ALLAN TERAMURA & JILL STONER The Ottawa Citizen

On Oct. 22, Ottawa residents elect a new city council. To help local candidates as they campaign, the Citizen features some ideas that would make the city a better place. Today, Allan Teramura and Jill Stoner explore one feature European cities have that we could emulate.

Ottawa is a unique Canadian city, and perhaps its most unique feature is the Rideau Canal, with its magical attraction in both winter and summer, transcending the seasons. Yet Ottawa is missing one crucial urban feature: a large, open civic space, like Toronto’s Nathan Phillips Square, Montreal’s Place des Festivals, and Vancouver’s Robson Square.

These kinds of venues, inspired by plazas and squares found in virtually every European city, enhance public life and help to reinforce international identity. Urban squares are where people celebrate together, conduct commerce and gather for the simple pleasure of being in the company of fellow citizens. These are spaces of spontaneity and joy; no great city is complete without one.

And Ottawa has such an opportunity, nearly ready-made. As a main component of Ottawa’s ByWard Market, York Street possesses the exact proportions of Rome’s famous Piazza Navonna, where at all times of day and night one finds a lively and eclectic mix of commerce, entertainment and food. With simple modifications, York Street can be transformed from what is essentially a large parking lot into a similarly vibrant and iconic public space for Ottawa.

Last winter, the City removed 20 parking spaces at the west end of York, paved the area and installed a large OTTAWA sign and some simple low-cost furniture to test this vision. The sign almost instantly became a “selfie” spot for young people, and even in winter the chairs were often occupied. It is easy now to imagine the entire street cleared of cars, re-surfaced with architecturally unique pavers from building edge to building edge. The new plaza will become a barrier-free urban living room, flexibly furnished and generously proportioned for a wide variety of both inventive and ordinary activities.

Transforming York Street to York Plaza can support the safety, vitality and economic sustainability of the entire neighbourhood. In summer, additional outdoor tables to serve nearby restaurants, casual seating for clients of take-out joints, and landscaping to provide shade are all elements that can easily and economically be brought to the plaza. In winter, programming such as a Christmas Market, restaurant-style outdoor fireplaces, hot chocolate kiosks, and Winterlude-related events will ensure that the plaza is active year-round. Additional, affordable food vendors can help reinforce the ByWard Market’s identity as a destination for local, high quality produce, while also providing start-up commercial opportunities for Ottawa residents.

Everyone’s first question is likely about the negative effects of removing parking from this commercial district. To be sure, such moves require careful consideration. Yet on a typical weekend, there are hundreds of available parking spaces within the ByWard Market area. This was true even when the parking spaces on York were displaced by Inspiration Village during the summer of 2017. And the city continues to encourage and support use of public transit, with a new light-rail station two blocks from York on Rideau Street set to open next year.

Decades ago, the idea of plowing snow off seven kilometres of the Rideau Canal for no other reason than to create a venue for ice skating was no doubt greeted with skepticism. Yet today, the skateway is perhaps the most iconic element of Ottawa’s international identity. York Street’s transformation is another such opportunity to capitalize on a piece of our existing urban fabric.

Throughout North America, cities are thinking past the outdated practices of excessive street parking and asphalt lots, and modifying these urban spaces to better serve local practices and local desires. Philadelphia’s “The Porch” and Toronto’s “Sugar Beach” are both the result of trading car space for public space.
Great cities seize opportunities and embrace visionary ideas, and York Plaza is in the wings just waiting to happen. In no time, it will be hard to imagine Ottawa without it.

OREA joins chorus calling for stress test’s annulment


 
by Neil Sharma 19 Sep 2018 MBN

Ongoing negotiations for a new North American Free Trade Agreement highlight a looming crisis for Canadian homeowners.

“Every economist may not agree on the timing, but interest rates are heading up, which means mortgage rates are heading up, and if you add 200 basis points onto every increase, you’re really pushing a lot of first-time homebuyers out of the market and impairing the dreams of move-up buyers who have kids and want a little more space,” said Ontario Real Estate Association CEO Tim Hudak.

That OREA has joined a growing a chorus of mortgage and real estate professionals who believe the stress test should be rescinded is unsurprising. Led by Hudak, OREA has championed helping first-time homebuyers attain homeownership, however, that buying cohort has arguably been B-20’s greatest casualty.

Additionally, in spite of the Canada Mortgage and Housing Corporation’s amendments to qualification guidelines for the self-employed, the stress test remains insurmountable for a great many.

“Our point of view at OREA reinforces the federal government to take a second look at the stress test because every time the interest rate goes up, the stress test goes up 200 basis points above that, making it even harder to get a mortgage and penalizes millennials, new Canadians and entrepreneurs trying to get into the housing market,” continued Hudak. “We certainly support government programs that encourage responsible and sustainable borrowing, but this pile-on of all kinds of new rules, regulations and taxes harms aspiring homeowners and sets back the potential of our economy.”

Hudak is the former leader of the Progressive Conservative Party of Ontario, and he joins the Conservative Party of Canada’s Deputy Shadow Minister for Finance in calling on the Trudeau government to annul, if not at least study, the stress test.

“The new stress test is going to block up to 60,000 Canadians from being able to buy a home,” MP Tom Kmiec previously told MortgageBrokerNews.ca. “About 100,000 Canadians will probably fail the stress test and won’t be approved to borrow from a federally-regulated lender and that will push them to the unregulated lenders. We know from a CIBC Capital Market report that 47% of all mortgages need to be refinanced in 2018. In the year they knew there would be so many people refinancing, they still imposed the stress test. That was irresponsible and unfair.”

The NAFTA negotiations have hitherto curbed rising interest rates, but, according to Hudak, the entire episode has shed light on a problem that will soon loom large.

“In an era of rising interest rates, whether that rise is stalled by uncertainty in NAFTA or not, we need to drive home the importance of revisiting the stress test,” said Hudak. “It doesn’t make sense to keep piling up more expensive mortgages on top of rising rates from the Bank of Canada.”

Related stories: Debt will remain a fixture of many Canadians’ lives for a long time

Debt will remain a fixture of many Canadians’ lives for a long time


 
by Ephraim Vecina Sep 2018 MBN

A significant proportion of Canada’s borrowers are bracing themselves for several more years of paying off their debts, according to the latest edition of the Canadian Payroll Association’s annual survey.

The study found that 43% of Canadians have resigned themselves to the fact that it will take them 10 years to settle their accountabilities. This was a significant increase from the 36% in 2016.

Meanwhile, 72% said that they have managed to save only one-quarter or less of the retirement stash that they need.

The results are especially troubling in light of the increasing debt loads that Canada is taking on. The survey found that 40% of working Canadians said that they are overwhelmed by debt, increasing from the 35% proportion last year. Full 34% stated that their total dues have grown over the year, up from 31% in 2017.

Respondents mainly attributed their increased debt to higher living costs (27%) and unexpected expenses (20%).

Read more: Two-thirds of Canadians regret their debt – study

“Unfortunately, we’ve been seeing these financial trends for a number of years now, and I can’t stress enough the importance of tracking your spending, establishing a budget, creating an emergency fund and finding ways to pay down your debt,” Credit Counselling Society president Scott Hannah said.

“We are hearing from Canadians who are carrying an average debt load of $30,000 – people are feeling the stress of today’s debt and wondering how they will cope with higher rates in the future and the possibility of higher unemployment as a result of a drawn-out trade war,” Hannah added.

“While Canadians can’t control interest rates or the economy, they have the ability to take positive steps to improve their financial wellbeing while the rates are still relatively low.”

Related stories: Is Canada’s borrowing finally entering a lull?

Five Money Tips I Wish I Followed in My Twenties


 
Life & Money

 
Whether you’ve landed your first full-time ‘I’m an adult now’ job or are hustling a series of part-time side gigs, getting ahead financially is possible, and not just for Fortnite-playing YouTube stars. Spoiler alert: it starts with avoiding common mistakes many of us made in our 20’s.

As millennials, we’ve come to expect a few things for free or close to it (don’t go changing, Snapchat and Netflix) but affording the big-ticket items like buying a home or realizing a start-up dream can often feel overwhelmingly impossible. If building a fabulous future is more important to you than living in the present moment; take these financial tips for a test drive.

Don’t be a Professional Student

Working towards an undergraduate or graduate degree, or enhancing skills through continuing education may be excellent life choices. Getting an education can negatively impact your financial health when you become a professional student — remaining in school with no real plan and no line of sight on earnings, especially if racking up student loan debt is the only way to pay for it. If you are avoiding the realities of landing a paying position at a company, it may be time to take stock of your life plan being a perennial student.

Don’t be Turned off by “Good” Debt

One of the best ways to get ahead financially may include incurring some good debt. While this may sound counter to everything you have been taught, good debt can include investing in an affordable mortgage — or any asset that increases in value — increasing your net worth along with it. A student loan for a program that elevates your future earning potential is another example of good debt. Bad debt: splurging on a huge wedding when you can barely afford to reload your Starbucks app.

Don’t Fall into the Digital Dollars Abyss

Things that are obsolete: Blockbuster Video. Public Pay Phones. Coming soon is physical currency? Governments still print money (for now) but we can go weeks without handling cash thanks to Apple Pay and our debit/credit cards. The downside: We don’t physically see the money being depleted in our wallet as we spend our way through the day. A budgeting app or a simple login to your banking app can help you track how money is slipping through your fingers with each and every swipe or tap. Keep track. Resist your temptations from time to time, and watch how your digital dollars can grow.

Do Consider the True Cost of Plastic Purchases

Credit cards are one plastic accessory that is almost impossible to avoid (just try booking an Airbnb without one). Having access to good credit and learning how to manage it is critical to financial success; however, it can also be the start of a downward financial trend if you’re not savvy. Yes, you can now purchase South X South West tickets on your handy piece of plastic, but if paying the cost off takes months you may ultimately pay double the cost via the credit card interest. Consider a disciplined approach to using your square piece of plastic: If you can’t afford it now, buy whatever it is you desire and make sure you pay it off. This not only builds your credit rating, but establishes a healthy relationship with Plastic. If you are using plastic to bridge yourself financially, ask yourself if you will be able to still afford your desired purchase when you’re paying more than the current price once interest is added to your plastic purchase down the road.

Do Invest in Yourself

Investing in the sometimes confusing and ever-fluctuating investment world can be a daunting experience for the inexperienced. You may not be killing it on the salary front (yet!), so investing your hard-earned dollars might seem like seriously risky business. Make sure you are setting aside 10% of your earnings into a TFSA or separate Savings account. You can even automate the payments so they come off as soon as your paycheque hits your account – that way you don’t miss the money. There are other ways to invest without literally investing dollars— Use your early working days to invest in educating yourself on just the basics of how markets work, how to read a stock table, and how to understand the various exchanges. Why? The better educated you are, the more decision power you’ll have when the time comes to dip your toe in the investment world — like contributing to an RRSP.

Nation’s capital enjoying renaissance


 
by Neil Sharma Sep 2018 MBN

Construction in the nation’s capital is on fire.

According to Ameera Ameerullah, CEO of Canada Mortgage & Financial Group, the firm has been lending on a lot of construction projects this year.

“We are currently facilitating about $47mln in land development and construction financing in Ottawa presently,” she said. “It ranges from land assembly and construction for single-family detached bungalows to a 76-unit low-rise condominium development in three phases, and land assembly for a retirement facility and golf course.”

Given that Ottawa is an historically stable market, and one that’s growing, Canada Mortgage & Financial Group’s presence there isn’t surprising.

“It’s a growing community in Canada, specifically in Orleans, which is up and coming with a stable job market due to the federal government,” said Ameerullah. “Orleans has one of the strongest household income levels in Canada, and the rental vacancy has been close to 2% over the past 10 years.”

Indeed, by all accounts Ottawa’s real estate market is on fire. According to Chris Allard, a broker with DLC Smart Debt, the growth in new construction is mostly occurring in the city’s east, south and west ends.

However, it’s creating frenzy for borrowers, brokers and lenders.

“We have some clients on waiting lists to even be able to put in an offer with a builder,” said Allard. “A builder only releases X amount of properties for a certain model and there’s already a waiting list. Those aren’t going to multiples, but you hope to be the next guy to actually put an offer in. I have clients who have slept in sleeping bags outside a sales centre just to put their names on a list.

“A lot of people need preapproval letters for builders, as well.”

Ottawa’s resale market is replete with multiple offer situations and, inevitably, broken hearts. Comparing it to what occurred in the Greater Toronto Area a couple of years ago, Allard says it’s ideal for sellers but tough on buyers.

“It means the parties involved are all a bit more stressed,” he said. “The borrowers are stressed because perhaps they did not put any financing conditions on their offer; the mortgage professional is stressed because if the borrower did put in a financing condition, then in a lot of cases the financing condition is very short, which means we need to be quick at getting an approval. That means we add pressure on the lenders to do everything quickly, but when there’s a hot market lenders are busy too, so the pressure goes down the chain from the borrower to the mortgage broker to the lender.”

Related stories:
Canada’s top markets for home buyers and sellers
Stress tests derailing most would-be home owners’ dreams – study Landing

5 Surprising Mortgage Facts


 
There’s something about September that signals a fresh start. It’s a perfect time to get serious about saving money on your mortgage. So get out your notebook: here are five surprising mortgage facts that can save you money over the long term!

Fact #1: Your credit score matters even more

Lenders are beginning to review client files prior to renewal, which means if your credit score has slipped, you may be offered a higher rate at renewal, even if you have never missed a payment. Regardless of where you are in your mortgage term, it is very important to always pay your bills on time, use only 30% of your credit limits, and monitor your credit score regularly.

Fact #2: Refinancing is still one of the best ways to get debt under control

If you’re holding too much high-interest debt and you have enough equity, consolidating all of it into a low-interest mortgage can save you thousands in interest, lower your monthly payments, boost your cash flow, and eliminate the stress of multiple debt payments. It can also improve your credit score!

Fact #3: Interest-only mortgages are once again available for those with more than 20% equity in their homes

While not a product for everyone, this can be a great financial strategy for those who want to minimize their mortgage payments to free up cash flow for other uses like investing, business needs, post-secondary education, maternity leave or other life situations. Lump sum payments can be made when the time is right for principal paydown.

Fact #4: Variable mortgages are popular

While fixed rates are higher today than they were a year ago, many lenders are offering exceptionally low rates on their variable rate mortgages. In addition to offering the ability to save on interest, a variable mortgage can be significantly less expensive if you need to get out of your mortgage later.

Fact #5: Insured mortgages get the best rates

If your mortgage is not insured, it’s possible that you weren’t eligible for the best rates available at that time. Some uninsured mortgages can now be switched at renewal to a new lender that will offer an insurable rate, a move that could offer huge savings. Not sure if your mortgage is insured or not? I can find that out for you.

If you have any questions about your current mortgage strategy, are thinking of refinancing, or getting closer to renewal, get in touch. I’m here to help you, your family and friends understand which mortgage facts are the most important at any given time.

Ever-increasing home ownership costs scaring off Gen Zers


 
by Ephraim Vecina MBN

In a fresh RE/MAX survey conducted by Leger, a significant number of prospective home buyers in the 18-24 age bracket are not interested in owning homes amid a market environment characterized by inflamed price growth and an upward trend in interest rates.

38% of the poll’s respondents, which were all members of Generation Z, indicated that they have no desire to go into home ownership at the moment.

The RE/MAX study added that Gen Zers in Toronto tend to prefer renting or continue living with parents. The analysis also found, however, that nearly 51% of that generation in Vancouver would like to own a home within the next few years.

For Gen Zers in Ontario and B.C., among the top reasons to own a home are planning for the future (63%), getting a good investment (25%), and avoiding the various pitfalls associated with renting (3%). Of this cohort, 8% also said that buying their own homes is something they “should” do.

Read more: Millennial demand, economic strength continue to push prices upward – report

Regarding their preparations for possible future purchases, 50% of respondents in B.C. and 45% of those in Ontario said that they would like to learn more about the housing market, as they fell that their current level of knowledge is limited.

“Gen Zers are interested in learning more, and a greater effort needs to be made to educate them about the benefits and potential risks of home ownership,” RE/MAX of Western Canada regional executive VP Elton Ash said.

“While the prospects of home ownership may seem daunting, that doesn’t mean that Generation Z should give up hope,” RE/MAX INTEGRA Ontario-Atlantic Region executive VP and regional director Christopher Alexander added. “It will be more important than ever for financial institutions and real estate professionals to educate this generation and reach them through the platforms they frequent, such as social media and online.”

Generation Z is expected to outnumber the millennial segment in the near future, RE/MAX stated. Multiple observers have previously argued that this young cohort, which is possibly the most tech-literate ever, will make major waves across the housing sector and its associated industries over the next two decades.

Related stories: Condo segment might experience a boomer surge in the near future

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