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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?

We can help.

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.

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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.

Nearly half of mortgages face renewal in 2018

A new CIBC report says that 47 per cent of all existing mortgages in Canada must be refinanced this year, substantially more than in prior years.

THE CANADIAN PRESS/Jonathan Hayward – The Canadian Press

TORONTO — Nearly half of all existing mortgages in Canada will need to be renewed this year, substantially more than in prior years, according to a new report, amid rising interest rates and new rules that make it tougher for some borrowers to shop around.

A CIBC Capital Markets report suggests an estimated 47 per cent of all existing mortgages will need to be refinanced in 2018, up from the 25 to 35 per cent range in a typical year.

The increase is an unintended consequence of various rounds of regulatory changes in the past few years aimed at reducing risk coupled with rising house prices that made it harder for homebuyers to qualify, said Ian Pollick, CIBC’s executive director and head of North American Rates Strategy in a report released Tuesday.

“Over the past two to three years, as home prices have risen unchecked, you’ve had people trying to get into the housing market unable to afford longer term mortgages and taken out short-term mortgages,” he said in an interview. “And in 2018, everything is falling on top of one another.”

The increase in renewals comes as mortgage rates have been rising.

Recent Bank of Canada interest rate hikes have pushed up variable rate mortgage rates, while five-year fixed rates up about half a percentage point compared with a year ago as yields on the bond market, where the big banks raise money, have been on the rise since late last year due to an improved economic outlook.

Meanwhile, new lending guidelines introduced this year stipulate that homeowners looking to renew their uninsured mortgages are subject to a new stress test, unless they stick with their existing provider, hobbling their ability to seek out a more competitive rate.

Under the tighter lending guidelines, known as B20, homebuyers seeking a loan from a federally regulated lender must prove they can service their uninsured mortgage at a qualifying rate of the greater of the contractual mortgage rate plus two percentage points or the five-year benchmark rate published by the Bank of Canada.

An existing stress test already requires those with insured mortgages to qualify at the central bank’s benchmark five-year mortgage rule.

However, borrowers who renew their uninsured mortgage with their existing lender are not subject to the new stress test, which took effect Jan. 1.
In turn, there is less incentive for lenders to offer lower rates to compete for market share, as they did during the so-called “mortgage wars” roughly five years ago.

Related stories: Mortgage tidal wave coming

Despite NAFTA uncertainty, housing markets pulling through – RBC

by Ephraim Vecina 10 Apr 2018 MBN

The CEO of Canada’s largest bank has stated that while uncertainty over the North American Free Trade Agreement talks remains a concern for the bank’s customers on both sides of the border, so far those clients and markets have broadly been working through the uncertainty.

“We are in close dialog with governments and our customers and remain hopeful of a good outcome on both sides,” Royal Bank of Canada chief David McKay said, as quoted by Bloomberg.

The bank is seeing more balanced pricing in the housing market, McKay emphasized. “Policy changes in Ontario and in other provinces have contributed to a welcome shift in market psychology towards more caution, and we remain very comfortable with the characteristics and credit performance of our mortgage portfolio.”

Read more: Housing policies can, and will, affect the economy – TREB

McKay also highlighted the importance of the U.S. for its operations, which includes Los Angeles-based City National Bank, wealth management, and a sizable capital markets operation based out of New York.

“The U.S. is absolutely fundamental to sustaining our growth,” McKay said, noting that the U.S. accounted for 23% of the Toronto-based bank’s total revenue, versus 18% five years ago.

Crucially, McKay stressed that Canada needs to do more to remain competitive, regardless of the results of the discussions around the three-country trade agreement.

“Whatever the outcomes of the NAFTA negotiations, Canada must do more to ensure its competitive edge,” McKay said.

“This is not just about taxes, but addressing how we get our goods and resources to the market, by road, rail, or pipeline, in a sustainable way,” McKay added.

“The Canada of tomorrow will have to be more flexible, more open, and move faster than before.”

Canada’s biggest generation is flocking to these cities

by Ephraim Vecina 2018 MBN

In its latest study, real estate portal Point2 Homes found that quality employment and housing affordability are two of the most important factors that push Canadian millennials toward certain metropolitan markets.

The report added, however, that “this upbeat generation obsessed with life-work balance is looking for more than just a well-paying job and a nice house. They want engaging leisure activities, opportunities to socialize with other like-minded millennials, eco-friendly resources, and a safe but exciting city where they can thrive.”

The Point2 Homes analysis found that 7 of the top 10 best cities for millennials have less than 500,000 people living in them.

Quebec City stood as the most appealing Canadian city for millennials, taking into account its unemployment rate (the 3rd lowest in the country) and its healthcare index (the 8th best nationwide), along with affordable housing, above average wages, and low incidence rate of crime.

Read more: Majority of Canadians see real estate as a good long-term investment

Langley Township, BC ranked as the least tempting place for millennials. This is because despite the locale not having any problems when it comes to employment, “it also has a high crime rate and a low percentage of millennials living here. And although a home in Langley sells for less than half the average price of a Vancouver property, its housing market is still severely unaffordable, which puts the township at the bottom of the list.”

Surprisingly, the country’s largest cities – Toronto, Montreal, Vancouver, Ottawa, and Calgary – did not make it even to the top 5 most desirable housing destinations for members of Generation Y.

The full study can be viewed here.

Unexpected GDP contraction attributed to drop in housing, oil output

cibc outlook
by Ephraim Vecina 03 Apr 2018 MBN

Canada’s gross domestic product unexpectedly fell in January as the economy faces a broad slowdown after surging last year.

GDP shrank 0.1% during the month, Statistics Canada reported late last week in Ottawa, weighed down by sharp declines in oil production and real estate. This is in contrasts to economists’ earlier predictions of a 0.1% gain.

After leading the Group of Seven in economic growth in 2017, Canada is widely expected to slow this year as highly indebted households pare spending. That should keep some pressure off the Bank of Canada to raise interest rates.

“The economy is slowing down as rate hikes are probably biting,” Toronto-Dominion Bank North American head of FX strategy Mark McCormick told Bloomberg, adding that one more hike is likely this year. The Bank of Canada has raised borrowing costs three times since July.

January’s output drop puts the economy on track for sub-2% growth for a third straight quarter. That would be the slowest stretch since 2015. Compared to a year earlier, output was up 2.7%, the smallest gain in 11 months.

On the plus side, Statistics Canada revised up its estimate for December GDP growth to 0.2%, from 0.1% initially.

Only two of 15 economists surveyed by Bloomberg News predicted a contraction in January. Most see a quick rebound due to the temporary nature of the oil-production curbs.

The monthly decline was the largest since May 2016, driven by a 3.6% drop in oil and gas extraction. Statistics Canada cited a 7.1% reduction in oil sands production due to unscheduled maintenance shutdowns.

Still, the overall trend for slower growth – which began in the second half of last year – remained intact for 2018.

While monthly GDP should bounce back, “we’re going to revise down our Q1 GDP forecast to sub-2 percent, adding weight to our view that the Bank of Canada is on hold until July,” CIBC World Markets chief economist Avery Shenfeld wrote in a note to investors.

Another drag on January output was falling real estate activity as new mortgage qualification rules kicked in, particularly in Toronto. Real estate agents and brokers saw their output drop 13% in January, the largest monthly decline since November 2008 for the industry, as home sales slumped.

Many home buyers rushed to buy homes at the end of 2017 to get ahead of the rules, which had the effect of inflating transaction numbers for December but reducing them for January.

Fiscal watchdogs caution about Canada’s untrammelled borrowing spree

by Ephraim Vecina15 Mar 2018

Canada’s mountain of consumer debt is garnering multiple alarms about the threat to the country’s banks.

Moody’s Investors Service joined the Bank for International Settlements and S&P Global Ratings, which have all warned in the last month that Canada’s banking system, dominated by 5 giants, is facing a growing threat of soaring consumer loans amid rising interest rates.

The country’s ratio of household debt to disposable income reached a record 171% in the 3rd quarter of last year. The proportion of uninsured mortgages has increased to 60% from 50% five years ago, including home equity lines of credit, amid government efforts to reduce taxpayer exposure, according to a Moody’s report released earlier this week.

Almost half of outstanding mortgages, many of them on fixed-rate terms, will have an interest-rate reset within the year, increasing the strain on households’ debt-servicing capacity, Moody’s said.

Further aggravating the situation are auto loans which are getting offered at terms as long as 68 months, Bloomberg reported.

However, it’s the unsecured credit-card portfolios that will be the first to feel the pinch as their repayment tends to have lower priority for financially strapped borrowers, Moody’s warned.

All of these consumer loans have so far performed well in Canada as the country boasts the lowest unemployment rate in four decades. The arrears rate is only 0.24% for residential mortgages, 7 basis points below the 10-year average, while the auto-loan delinquency rate is only 1.5%, Moody’s said. Canadian banks have also earned a reputation of being well-managed, conservative institutions after passing through the global financial crisis relatively unscathed.

The warning from Moody’s came after the Bank for International Settlements placed Canada among the economies most at risk of a banking crisis, alongside Hong Kong and China. S&P Global Ratings last month lowered a key risk metric for Canadian banks after evidence of mortgage fraud.

The Bank of Canada held interest rates steady this month after increasing them 3 times since the middle of 2017. The central bank said it will continue to monitor the economy’s sensitivity to higher rates.
Related stories:
Indebted Canadians are slowing down on their spending

Illegally built homes may come with devastating consequences

by Ephraim Vecina Mar 2018

In commemoration of Fraud Prevention Month, Tarion Warranty Corporation has warned would-be house buyers in Ontario that an illegally built home will not only be unsafe, but also come with the possibility that a builder will simply abandon the project altogether upon getting paid.

These homes are also a pain in the wallet, Tarion noted.

“When it comes to the largest investment of a family’s life, namely a newly built home, it pays to know that your builder has the technical and financial wherewithal to complete the job and that you have the protection of a warranty if anything goes wrong,” Tarion president and CEO Howard Bogach said.
Bogach added that according to law, every builder in Ontario must be registered with Tarion and must enroll all newly built homes in the warranty program. Municipalities across the province also share their building permit information with Tarion.

Read more: Mortgage fraud could increase next year

The Tarion executive warned that unregistered builders do not necessarily comply with Ontario Building Code specifications, and the new owner can fall victim to shoddy craftsmanship, including dangerous and costly elements such as faulty electricity and plumbing.

Bogach stressed that prospective buyers of new homes need to recognize the signs that a builder might be operating illegally, including:

A builder saying that they built the house for themselves but then decided to sell it

A builder saying they offer their own warranty and the homeowner doesn’t need Tarion’s warranty

A builder arguing that the Tarion warranty is too costly (sometimes quoting $10,000 when in fact the maximum cost is $1800 plus taxes.)

A builder offering the consumer a brief contract or, worse, no contract at all

Last year alone, Ontario provincial courts gave 117 convictions related to illegal building, and illegal builders paid almost $400,000 in fines for proceeding without proper registration, warranties, or permits. In 2016, one builder even went to jail.

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