Four-Month Home Sales Gain Ends in September

Canadian home sales declined for the first time in five months led downward by weakening activity in Vancouver and Toronto. Statistics released today by The Canadian Real Estate Association (CREA) show national home sales fell by 0.4% from August to September. While housing activity has picked up since the first half of this year, it remains well below the boom levels of 2014 to early-2017.

The September slowdown was reported in just over half of all local markets, led by Vancouver Island and Edmonton, along with several markets in Ontario’s Greater Golden Horseshoe (GGH) Region. The Real Estate Board of Greater Vancouver reported a 17.3% decrease in sales in Metro Vancouver from August to September, while y/y sales dropped a whopping 43.5%. Last month’s sales in Metro Vancouver were 36.1% below the 10-year September sales average. Newly listed homes have been rising providing more choice for potential buyers. But with tepid demand, home prices in Metro Vancouver are under downward pressure.

Monthly sales gains were most evident in the Fraser Valley and Montreal. The Montreal housing market has been strong for well over a year.

On a year-over-year basis, national sales declined 8.9% last month. About 70% of local markets were down on a y/y basis, let primarily by declines in major urban centres in British Columbia, along with Calgary, Edmonton and Winnipeg.

As interest rates are rising, the new mortgage stress tests are becoming more restrictive.

New Listings

The number of newly listed homes rose 3% between August and September, led by the Lower Mainland and the Greater Toronto Area (GTA). More than half of all local markets posted a monthly increase in new listings, which was offset by declines of more than 3% in more than half of the remaining local markets.

With sales down slightly and new listings up, the national sales-to-new listings ratio eased to 54.4% in September compared to 56.2% in July and August. The long-term average for this measure of market balance is 53.4%.

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 September 2018.

There were 5.3 months of inventory on a national basis at the end of August 2018. While this is in line with the measure’s long-term average nationally, the number of months of inventory is well above its long-term average in all Prairie provinces and in Newfoundland & Labrador.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) was up 2.3% y/y in September 2018. The increase was in line with those posted in each of the two previous months. Benchmark home prices fell by 0.26% from August to September (see Table below). Downward price pressure in much of B.C. continues.

Following a well-established pattern, condo apartment units posted the most substantial y/y price gains in September (+8.4%), followed by townhouse/row units (+4.5%). Meanwhile, one-storey and two-storey single-family home prices were little changed on a y/y basis in September (-0.3% and -0.3% respectively).

Trends continue to vary widely among the 17 housing markets tracked by the MLS® HPI. In British Columbia, home price gains are diminishing on a y/y basis in the Lower Mainland (Greater Vancouver (GVA): +2.2%; Fraser Valley: +8.5%). Meanwhile, prices in Victoria were up 8.7% y/y in September. Elsewhere on Vancouver Island, they climbed 13.2%.

Among the housing markets in the Greater Golden Horseshoe region that are tracked by the index, home prices were up from year-ago levels in Guelph (+8%), Hamilton-Burlington (+6.1%), the Niagara Region (+5.9%), the GTA (+2%), and Oakville-Milton (+1.4%). By contrast, home prices slipped lower in Barrie and District (-3.6%).

Across the Prairies, benchmark home prices remained below year-ago levels in Calgary (-2.6%), Edmonton (-2.6%), Regina (-4.7%) and Saskatoon (-1.9%).

Home prices rose by 6.9% y/y in Ottawa (led by a 7.9% increase in two-storey single-family home prices), by 6.1% in Greater Montreal (driven by a 7% increase in townhouse/row unit prices) and by 3.4% in Greater Moncton (led by a 10.3% increase in apartment unit prices).

Bottom Line

Housing markets continue to adjust to regulatory and government tightening as well as to higher mortgage rates. The speculative frenzy has cooled, and multiple bidding situations are no longer commonplace in Toronto and surrounding areas. The housing markets in the GGH appear to have bottomed, and supply constraints may well stem the decline in home prices in coming months. The slowdown in housing markets in the Lower Mainland of B.C. accelerated last month as the sector continues to reverberate from provincial actions to dampen activity, as well as the broader regulatory changes and higher interest rates.

The cost of owning a home in Canada is at its highest level in 28 years and likely to get only more expensive as interest rates continue to rise (see chart below). Homeownership costs, including a mortgage, property taxes and utilities, took up 54% of a typical household’s pre-tax income in the second quarter, according to the Royal Bank, compared to 43% three years ago.

While rising prices was the culprit behind the loss of affordability between 2015 and 2017, mortgage-rate increases accounted for the entire rise in carrying costs over the past year. The country’s central bank has hiked interest rates four times since July 2017 which has filtered through to higher borrowing costs for homeowners.

I expect the Bank of Canada to proceed with further rate hikes taking the overnight rate up from 1.5% to 2.25% in the first half of 2019. This will keep upward pressure on mortgage rates and increase the cost of homeownership even more across Canada.

Higher housing costs cannot be blamed on speculators. Recent analysis by Bloomberg using Teranet Inc.’s land and housing registry shows that condo flipping was never pervasive in the Vancouver and Toronto housing booms and that condo-flipping has diminished since late 2016. This suggests that stricter measures to curb speculators will not make those cities more affordable.

Rents Rising in GTA

Recent data have also shown that Toronto’s rental market continues to tighten as demand for housing in the city soars from millennials, down-sizing baby boomers and an influx of new tech and financial-services workers. High home prices, rising mortgage rates and new government regulations have priced out many buyers, pushing them into the rental market.

Rents in the GTA have risen sharply over the past two years as vacancy rates decline. More upward momentum in purpose-built rental construction is required to meet overall demand.
The total inventory of purpose-built rentals coming under construction rose to 11,172 units, according to Urbanation, a real estate consulting firm that specializes in the condo market. That’s the highest level in more than 30 years and 56% more than last year. Just 60 such buildings have been completed since 2005.

At the same time, construction starts of rental buildings slowed to 826 units in the third quarter, dropping from a recent high of 2,635 starts in the second quarter. The Ontario government’s broadening of rent controls to all newly constructed units is a deterrent to the volume of new supply necessary to meet the city’s rental housing demand.

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.

Legalized Marijuana and the Canadian Housing Market

October 17th will be an important day in Canada’s social history. It’s the day when we are going to have legalized marijuana across the country. We will be the second major country in the world to do this. How does this affect mortgage brokers like myself? When someone comes to me to obtain financing for a home purchase and the sellers have disclosed that they smoked pot in the house or grew a few plants , how will this affect their home purchase?

A few years ago, someone disclosed that their home had been a grow-op six years previously and their home insurance company cancelled their policy citing safety issues. I could see this happening with both lenders and mortgage default insurers like CMHC, Genworth and Canada Guaranty. A recent article by a member of the Canadian Real Estate Association suggested that both lenders and insurers might ask for a complete home inspection. It was suggested that sellers who have grown a few plants might want to get a head of a problem and have an inspection before they list the property. If there are any issues of mold or electrical systems that are not up to code, they can remedy this and have a quick sale.

I contacted both CMHC and Genworth Canada to find out if any policy changes are in the works. CMHC told me that there’s nothing planned beyond what is already on the books. If there’s been a grow operation it needs to be inspected and remediation done before they will insure. Genworth says that nothing has been announced as of yet. Any changes will result in an official announcement to all brokers.
Mortgage brokers may want to call their realtor referral partners and discuss this with them to see if local real estate authorities have any changes planned. If nothing else it will be good to touch base with your realtors to find out how the market is in your area.

If you are thinking about smoking pot in your home or want to grow a few plants , contact your local Dominion Lending Centres mortgage professional first to find out if this could affect your house value or sale in the future.

David Cooke

Dominion Lending Centres – Accredited Mortgage Professional

Your HELOC and declining property values

Home Equity Lines of Credit (HELOC) for many years have been a way for Canadians to unlock equity in their homes and use the money for investing, paying for children’s education or quite simply lowering their monthly interest payments on high interest credit cards. This is all great if the property values remain steady, but if there has been a big upswing in value and the HELOC has been increased, here’s what can happen if the values start to reduce.
The bank can call a HELOC at any time meaning they can tell you that you have to pay it off which for most would mean refinancing the property and turning it all back into a mortgage.
The bank can freeze the HELOC meaning you can’t use it as they may see that your equity is no longer as large as it has been in the past.
And of course, they can raise the interest rate on the HELOC at any time, most Canadians enjoy the great rate of prime plus .50% or 1% on their HELOC but that can change at any time. The Banks can decide they want more and increase that percentage at any time, plus of course we are in a rising interest rate period and the bank of Canada will most likely increase prime at least three times in the next year. With prime currently at 3.70 per cent,  your HELOC could easily be over 5% in the coming year.
A HELOC has to be used with some caution especially when using it for investing; a declining real estate market can easily wipe out any gains in equity and cause one or more of the above scenarios to occur.

Len Lane

Dominion Lending Centres – Mortgage Professional

Fixed-rate mortgage: What lenders you should do it with and why

25-year amortization or 30 years? Insured or Uninsured? With an A Lender or B Lender? These are just a few of the questions people have to decide on when they are pursuing a mortgage. But the biggest question of all: Fixed Rate or Variable Rate?

With the instability of the market, and the Bank of Canada’s continuous rate hikes, many people now are flocking towards a fixed rate mortgage over a variable rate. What this means is that they are choosing to essentially “lock in” at a rate for the term of their mortgage (5 years, 10 years, 1 year…you name it). Now there are benefits to this…but there are also disadvantages too.

For example, did you know that 60% of people will break their mortgage by 36 months into a 5 year term? Whether it’s due to career changes, deciding to have kids, wanting to refinance, or another reason entirely, 60% of mortgage holders will break it.

And just like any other contract out there, if you break it, there is a penalty associated with it. However, there is a way to avoid paying more than is necessary. This applies directly to a fixed rate mortgage and we can help you decide what lenders you should go with.

If you have a FIXED RATE MORTGAGE:
There are two ways your penalty will be calculated.

Method #1. If you are funded by one of the Big 6 Banks (ex. Scotia, TD, etc.) or some Credit Unions, your penalty will be based on the bank of Canada Posted Rate (Posted Rate Method) To give you an example:

With this method, the Bank of Canada 5 year posted rate is used to calculate the penalty. Under this method, let’s assume that they were given a 2% discount at their bank thus giving us these numbers:

Bank of Canada Posted Rate for 5-year term: 5.59%
Bank Discount given: 2% (estimated amount given*)
Contract Rate: 3.59%

Exiting at the 2-year mark leaves 3 years left. For a 3-year term, the lenders posted rate. 3 year posted rate=3.69% less your discount of 2% gives you 1.44%. From there, the interest rate differential is calculated.

Contract Rate: 3.59%
LESS 3-year term rate MINUS discount given: 1.69%
IRD Difference = 1.9%
MULTIPLE that by 3 years (term remaining)
5.07% of your mortgage balance remaining. = 5.7%

For that mortgage $300,000 mortgage, that gives a penalty of $17,100. YIKES!

Now let’s look at the other method (one used by most monoline lenders)

Method #2:
This method uses the lender published rates, which are much more in tune with what you will see on lender websites (and are * generally * much more reasonable). Here is the breakdown using this method:

Rate when you initially signed: 3.24%
Published Rate: 3.34%
Time left on contract: 3 years

To calculate the IRD on the remaining term left in the mortgage, the broker would do as follows:

Rate when you initially signed: 3.24%
LESS Published Rate: 3.54%
=0.30% IRD
MULTIPLY that by 3 years (term remaining)
0.90% of your mortgage balance

That would mean that you would have a penalty of $2,700 on a $300,000 mortgage.

That’s a HUGE difference in numbers, just by choosing to go with a different lender! Knowing what you know about fixed rate mortgages now, let a Dominion Lending Centres Mortgage Broker help you make the RIGHT choice for your lender. We are here to help and guide you through the mortgage process from pre-approval onward!

Geoff Lee

Dominion Lending Centres – Accredited Mortgage

What To Look For In A Mortgage Broker

Are you on the hunt for a mortgage broker? Or you need a mortgage broker but just don’t know it yet! Either way, this article is for you!

First up, where do you find a Mortgage Broker?

The easiest (and one of the best places to start) is with referrals from a realtor, family, friends, or co-workers. But this is just the start! There are thousands of independent mortgage brokers out there for you to partner with. So, what should you look for? That’s part 2.

What to look for in a Mortgage Broker?

When you are looking for a mortgage broker AND looking to buy a home that can lead to a very stressful time in your life. To make it easy, here are a few things that a broker should be doing for you:

1. Rates Don’t Tell the Whole Story. Getting a mortgage, refinancing your home or consolidating debts should not be seen as a quick and effortless task. There are brokers that make borrowing all about the rate; and that is just not the case. Be wary about Brokers who guarantee you a mortgage without asking for any documentation. Over the years personal lending has changed and continues to. With stricter than ever documentation requirements, lending policies and tougher credit checks, it’s important to be working with a broker who is educated. It is also important to work with a broker who asks to see the FULL picture. That means a little more work on your end to get all the proper documentation, but it can make a world of difference when it comes to selecting the right mortgage product for you.

2. Experience Really Matters. Maybe you have bad credit—or a larger car loan—or maybe you are self-employed. Whatever your unique situation is, you want to work with a broker who knows how to help you navigate through it to get you the best mortgage product. Yes, someone who is new to the world of home and personal finance may be smart, fully versed in policy and products and able to offer a great rate, but that doesn’t necessarily mean they are prepared to handle your situation. Try to find someone who has worked on a wide variety of deals in a wide variety of situations. A few questions to ask:
Have they had to work through someone’s debt in order to make a deal viable?
Do they know what to do when a deal doesn’t go as planned? Are they experienced in handling your unique situation? (ex. Working with someone who is self-employed, etc.)

3. Think Big Picture. There are many different pieces to your personal finance picture. From credit cards to student loans, they all fit together to create a picture that is unique to you and only you. With that in mind, a good mortgage broker should take time to find out about your goals—both long term and short term. They should ask you if:

• This is a starter home or long-term home?
• Are you planning on expanding your family (ex. having kids soon)?
• Do you have kids who are heading off to university and may have tuition payments to make soon?
• Do you have a parent who may need long-term care in the future?

All of these things can directly impact your finances, and in turn give direction to the mortgage broker on what you will need in a mortgage product. Asking these questions and others gives the mortgage broker a broad financial picture which gives them the perspective and knowledge to make an informed recommendation.

4. More than a Number. It’s no secret—mortgage brokers often will have sales/volume goals that they want to meet to take advantage of incentives. However, a good broker will set you up with the right product, rate, term and conditions that work for YOU…not them. They should be able to see past their own targets and goals and work with you to not only reach your goals but surpass them.

A satisfied, happy customer can turn into a life-long customer (and they bring friends and family with them too!) This is what a good mortgage broker should be able to see and portray to you. You should never feel rushed or like you are “just another number”. If your mortgage broker is focused on only one product or simply puts you into a 5-year rate without asking about your goals, it may be time to ask some questions.. You should never be given a mortgage without full explanation, details, and understanding of why that product is right for you.

5. Save Time—don’t shop. Over the past few years the idea that you can “shop” your mortgage around to different brokers to get a better rate has been made quite popular. The reality? 95% of the time every broker will end up offering the same rate for the same product. That’s not to say that there are not special rate offers out there—but they do typically have a specific requirement such as quick closings, shorter amortizations, higher down payments, limited repayment options, and smaller lenders. These are sometimes used, but for the vast majority of the population do not fit their needs. A general rule of thumb is that if a mortgage offer appears too good to be true, then it is.

A Final Note

With all that said, we find that borrowers who:

• take the time to seek out an experienced broker
• give an in-depth picture of their financial goals to their broker
• look for a broker who has a background in handling cases similar to theirs
• keep themselves financially in a good situation through debt repayment and budgeting
• avoid “shopping” for rates

Are the ones who breeze through the mortgage process. It’s important to look at your mortgage as not just a singular deal all on its own; it’s a part of a much larger picture. A mortgage should allow for you to live your life comfortably but realistically—making sure that other needs and obligations (vacations, healthcare, emergency savings, education, etc) are all considered and balanced with their mortgage/loan requirements. Finding a broker who understands what BALANCE looks like is the key to making the home-buying process as simple as possible. If you have any questions, contact a Dominion Lending Centres mortgage broker near you.

Geoff Lee

Dominion Lending Centres – Accredited Mortgage Professional