26 Jun

Housing prices in Calgary likely to drop by tens of thousands over next two years, says CMHC

General

Posted by: Greg Domville

Housing prices in Calgary likely to drop by tens of thousands over next two years, says CMHC

Average house price in Calgary could drop as much as 110K by 2022

A sign advertises a house for sale in Calgary in this file photo. The pandemic has greatly affected sale volumes and prices in the city. (Robson Fletcher/CBC)

The Canada Mortgage and Housing Corporation (CMHC) says the average price of a house in Calgary could drop by tens of thousands of dollars over the next two years.

Last year, the average house price in Calgary was around $443,000.

The CMHC’s latest Housing Market Outlook, which focuses exclusively on urban areas, says that the price is expected to drop to at least $399,800 by 2022, due to a combination of a sluggish economy and the effects of COVID-19.

However, that’s the high end of the forecasted range. The low end is $335,000.

“In the past few months, we’ve seen a significant shock to the economy and a shock to people’s incomes,” said Taylor Pardy, senior analyst of economics for the CMHC.

He said everything from a stall in migration to a near shutdown of the economy has impacted the housing market.

“That’s going to take a bit of a toll. We haven’t really had sort of those two factors come together in the past,” he said.

Slowing the pace of new construction

Pardy said the unprecedented measures taken to address the pandemic will be reflected in the slower pace of new construction over the next year.

“In 2020, we are projecting a 43 to 64 per cent decline in the pace of housing starts. That would likely be the worst of it,” he said.

Looking forward to 2021 and 2022, Pardy said the pace of new construction is anticipated to improve gradually as pandemic restrictions ease and economic activity improves.

“The other thing to remember is that with restrictions in place, typical sources of population growth in Calgary have been either significantly slowed or halted,” said Pardy.

“International migration as well as inter-provincial migration is likely not happening anywhere near the pace that it was pre-COVID.”

He said this will result in a significantly reduced rental demand at the same time a large number of rental units are anticipated to be completed and brought to market. Pardy said some existing units previously used as short-term rentals might be added to the supply of long-term rental units as well.

“The combined effect of a decline in demand and increase in supply could be a higher vacancy rate in Calgary over the next two years.”

Home Prices in Canada's Urban Areas

Sales prices expected to drop significantly

Pardy said Calgarians can expect resale activity to slow significantly this year, too, with a projected decline in sales between 12 and 27 per cent.

“In addition to a decline in MLS average prices of about 2.5 to 12 per cent,” he added.

Speaking on the Calgary Eyeopener on Wednesday, local realtor Len T. Wong said Calgary’s housing market has definitely taken a hit lately.

According to Wong, local sales volumes in April dropped by about 60 per cent compared with last year.

“Which put pressure on prices a little bit, by about five per cent,” he said. “And what we noticed with everybody psychology-wise is that they were panicking adjusting to the times.”

Wong said things looked a little better in May, with sales volumes down only 40 per cent from last year.

“We’ve seen a little bit of a hold and wait, and now we’re starting to see a little bit more activity,” he said.

“But long term, I think you know the fourth quarter will really tell us where we’re headed, and I don’t disagree that prices could go down like CMHC is saying,” he said.

Impacts of subsidies and mortgage deferral

Wong said government subsidies and mortgage deferral programs are likely also playing a role, and are helping prevent distress sales from people who aren’t bringing in their usual income.

“My concern is, of course, once [that funding] runs out … when we don’t have the subsidies and all the deferrals are done,” he said. “That’s when you’re going to really start to see the pinch.”

Wong said people who continue to buy right now haven’t been impacted much financially by the pandemic.

“They’re nurses, policemen, firemen — public sector type folks who have stable jobs — they’re the ones who have been buying during this COVID period,” he said.

‘Year 6 of a buyer’s market’

For homeowners who are thinking of selling right now, Wong said they should look to take advantage of the market when there has been an increase in volume.

“But people have to realize that they have to price it right,” he said.

“We’re in year six of a buyer’s market, and so people have to recognize that you’ve got to be in front of people to see them because if you get too many houses in that area, it’s not going to sell.”

CMHC’s forecast for Calgary housing prices over next two years. (CMHC)

For buyers, Wong said they could take advantage of  things like lowered lending requirements and lower than normal interest rates — currently down from nearly 3.5 per cent to some as low as 2.5 per cent.

“Buyers should take advantage of it to a degree because if interest rates start to go up or down, you can make up that differential. I think there’s good opportunities,” he said.

Pardy said lower interest rates would contribute to what people might be able to afford in the short run, but when you look at things like the unemployment rate, and the fact that roughly 15 per cent of mortgages are being deferred by the six big banks — it paints a less optimistic picture.

“There is certainly some financial stress on the system right now that needs to work itself out,” he said.

‘Difficult to predict’

Wong also predicted that the $300,000 to $500,000 market isn’t going to shift a ton.

“I think it’s the upper-end stuff that [will see] some of the heavy losses,” he said.

But Pardy said that’s hard to know for sure.

He said areas of the economy that have been hit hardest include retail, transportation, education and industries related to tourism, as well as accommodation and food services.

“How this translates into, you know, other segments of the economy and potential job losses … is yet to come,” he said.

A hurting energy industry will also have an impact, according to Pardy.

“We haven’t really seen that too much in the job numbers yet but that’s likely to come as well,” he said.

“Given the uncertainty around the distribution of unemployment, as well as the distribution of who’s lost out on income and how that’s translated into lost household income makes it very, very difficult to predict what segments are going to fare better versus others.”


With files from the Calgary Eyeopener.

About the Author

Lucie Edwardson

Journalist

Lucie Edwardson is a reporter with CBC Calgary, currently focused on bringing you stories related to education in Alberta. In 2018 she headed a pop-up bureau in Lethbridge, Alta,. Her experience includes newspaper, online, TV and radio. Follow her on Twitter @LucieEdwardson

26 Jun

Home prices in Vancouver haven’t gone down because people affected by COVID couldn’t afford them to start with

General

Posted by: Greg Domville

Home prices in Vancouver haven’t gone down because people affected by COVID couldn’t afford them to start with

Benchmark price for homes has stayed static; though rents have decreased

Vancouver’s real estate market has seen virtually no change in the average price of homes over the last 12 months. (Darryl Dyck/Canadian Press)

COVID-19 has changed elements of living in Metro Vancouver in so many ways, from transportation to the economy to drug and liquor policy.

But the price of buying a home? Well, some things stay the same.

“There is a little bit of disconnect right now,” said Central 1 deputy chief economist Bryan Yu.

Even with unemployment in B.C. at 13 per cent and a forecast GDP reduction of 7.8 per cent this year, the benchmark price of a property in Greater Vancouver has essentially remained constant — going from $1.02 million in February to $1.03 million in May.

While there’s evidence on sites like Craigslist that the price of rentals has dropped in the last three months, Yu said that the ownership market has stayed static and could even see a slight uptick when official numbers are released next week for June.

He believes one key reason is that people most impacted by the economic downturn weren’t players in Vancouver’s housing market to begin with.

“Whether it’s the accommodation sector or restaurant services … the economic impact has predominantly hit the lower end of the income spectrum,” said Yu.

“For higher income individuals still in the market, it’s likely they were still in the market. They were able to work or stay at home, in some cases able to save money.”

Troubles on horizon?

At the same time, Yu said Vancouver’s real estate sector couldn’t stay impervious to COVID-19 forever.

“As we move forward into the fall, there’s going to be a little more pressure,” he said, adding that lower immigration would also have an affect.

“The economy itself is not strong. It’s going to be quite weak as we go forward.”

On Monday, the Canada Mortgage and Housing Corporation released a housing outlook, forecasting the lower range for the average home price in Metro Vancouver would fall from $892,790 in 2020 to $809,215 by 2022.

“Average house prices will decline with weaker household budgets and the uncertain nature of the economic reopening,” wrote CHMC senior analyst Braden Batch and senior specialist Eric Bond.

However, they also said Vancouver’s “ownership markets are less exposed” to COVID-19, compared to the rental market.

“Real estate buyers tend to be older than renters. Therefore, they are less likely to have lost their employment as a result of the economic shutdown,” they wrote.

Government response?

The provincial government announced a host of housing policies in 2018 and 2019 — and have put in emergency COVID-19 measures to help protect renters — they have no immediate intention to make further changes.

Finance Minister Carole James says the government will be closely monitoring the situation.

“We’re going to watch the housing market,” said James.

“With COVID, there have been mixed results … but still a great challenge, so we’re continuing on with our measures, and not letting up from making sure we look at affordable housing for people.”

As COVID-19 dramatically slowed down public hearings and new staff reports, municipalities saw their housing plans effectively frozen, but that is beginning to change. The City of Vancouver is considering a new policy that would create rental tenure zoning in arterial streets across the city, in exchange for six-storey buildings for stratas, instead of the current four.

A public hearing is expected in July, and Housing Minister Selina Robinson is excited by the development.

“Local governments have been cautious, but we’re starting to see more pick up,” she said.

“During COVID, things changed in terms of acting on new things, but I’m really pleased to see the activity pick up. It means that local governments recognize we still need to be recognizing housing affordability.”

25 Jun

The CHIP Reverse Mortgage as your Debt Consolidation Solution

General

Posted by: Greg Domville

The CHIP Reverse Mortgage as your Debt Consolidation Solution

Canadians are choosing to carry more and more debt

For many Canadians, borrowing money has become an increasingly necessary means of keeping up with ongoing expenses. Whether it’s a traditional mortgage to get into a home, a line of credit to cover a major purchase or unexpected expense, or credit cards to pay monthly bills, many Canadians find themselves plagued by a high debt load at one time or another.

A high debt load is often caused by more than just spending or saving habits. Climbing costs of living combined with a slowing economy have further tightened many Canadians’ cash flows. The reality of the COVID-19 situation is that many Canadians will need to increase their debt to cover their monthly expenses, but there are no-payment options available to help them manage and consolidate these debts while increasing their cash flow at the same time.

Why consolidate your debts?

It can be a stressful experience to manage debt from multiple sources. With varying interest rates, due dates, and payment methods, many Canadians become overwhelmed by the sheer effort of keeping up with their debt’s demands. That’s why debt consolidation is such a popular strategy: It makes paying down the debt much more efficient and manageable by rolling multiple high-interest debts into a single sum with lower interest and reduced minimum payments. It helps you get out of debt faster and protect your credit score.

But with so many different debt consolidation solutions available, it can be difficult to decide which option is best for you.

The reverse mortgage advantage

For 55+ Canadian homeowners, a reverse mortgage is a great option to consolidate debt, especially during retirement. In these uncertain times, where investments and the economy have taken a major hit, many retirees will experience a monthly “income gap” where taking on additional debt is the most accessible option to cover the difference. And while retirees may have trouble increasing their income in retirement, the equity held in their home can be leveraged to consolidate their debts into one loan.

If you are a Canadian 55+ and own your home, the CHIP Reverse Mortgage® from HomeEquity Bank could be an excellent option for you. You can get up to 55% of the value of your home in tax-free cash (either lump sum or planned advances), and with a reverse mortgage, the interest rates are a fraction of what you pay with the average credit card. For these reasons, a CHIP Reverse Mortgage presents a fantastic debt consolidation opportunity – but there’s another major benefit to the reverse mortgage you may want to consider…

Say “So long” to making monthly payments

The CHIP Reverse Mortgage frees you from the burden of having to make monthly payments or interest payments until you decide to sell your home (or if you and your spouse pass away). Without these ongoing monthly payments, you’ll be free to focus on what really matters in retirement: Making the most of your daily life by doing what you love, with those you love.

For 55+ Canadian retirees, there’s only one debt consolidation solution that minimizes accumulating debt, reduces financial stress, and increases disposable income without having to make monthly payments or sell or lose ownership of your home: The reverse mortgage.

Want to know more about using the CHIP reverse mortgage as a debt consolidation tool? Contact your DLC Mortgage Broker for more information.

Posted by: Agostino Tuzi
National Partnership Director, Mortgage Brokers
HomeEquity Bank

Agostino Tuzi

Agostino Tuzi

Agostino Tuzi is the National Partnership Director, Mortgage Brokers at HomeEquity Bank.

25 Jun

Canadian Home Sales and New Listings Recover One-Third of Pandemic Loss in May

General

Posted by: Greg Domville

Canadian Home Sales and New Listings Recover One-Third of Pandemic Loss in May


Record Gains in Canadian Home
Sales and Listings in May

There was good news today on the housing front. Home sales surged by a record 56.9% in May from April’s unprecedented collapse. Data released this morning from the Canadian Real Estate Association (CREA) showed national home sales recovered roughly one-third of the COVID-induced loss between February and April (see chart below). On a year-over-year (y-o-y) basis, sales activity was still down almost 40%, but the jump in sales and an even larger surge in new listings shows pent-up demand remains for housing as buyers wish to take advantage of historically low mortgage rates.

Transactions were up on a month-over-month (m-o-m) basis across the country. Among Canada’s largest markets, sales rose by 53% in the Greater Toronto Area (GTA), 92.3% in Montreal, 31.5% in Greater Vancouver, 20.5% in the Fraser Valley, 68.7% in Calgary, 46.5% in Edmonton, 45.6% in Winnipeg, 69.4% in Hamilton-Burlington and 30.5% in Ottawa. Not surprisingly, the cities with the smallest gains posted the smallest declines in prior months.

More importantly, anecdotal data suggest that housing activity has been steadily rising from the middle of April until the first week in June.

New Listings

The number of newly listed homes shot up by a record 69% in May compared to the prior month with gains recorded across the country.

With new listings having recovered by more than sales in May, the national sales-to-new listings ratio fell to 58.8% compared to 63.3% posted in April. While this statistic has moved lower, the bigger picture is that this measure of market balance has been remarkably stable considering the extent to which current economic and social conditions are impacting both buyers and sellers.

There were 5.6 months of inventory on a national basis at the end of May 2020, down from 9 months in April. The temporary jump in this measure recorded in April reflected the fact that sales were expected to fall right away amid lockdowns; whereas, other variables like active listings would be expected to fall at a much slower pace. The CREA report suggests many sellers who already had homes on the market before mid-March may have left the listings up for now but drastically curtailed the extent to which they were showing their homes during the lockdown. With many of those now coming off the market, overall active listings have fallen by about a quarter as of the end of May, bringing them down among the lowest levels on record for that time of the year.

Home Prices

Home prices were little changed in May compared to April across Canada. Of the 19 markets tracked by the MLS Home Price Index (HPI), 18 recorded either m-o-m increases or smaller decreases than in April. Five markets posted price gains in May following a decline in April (see the table below for local details).

In general, since the pandemic crisis began small declines in prices have been posted in British Columbia while declining trends already in place in Alberta have accelerated. With the recent surge in oil prices, however, sales activity has actually improved across the Prairies and price trends have been stabilizing.

Despite the pandemic, home prices in the Greater Golden Horsehoe area around and including Toronto have fallen very little and remain well above year-ago levels. In Ottawa, Montreal and Moncton, prices have continued to climb, albeit at a slower pace than before.

Bottom Line

CMHC has recently forecast that national average sales prices will fall 9%-to-18% in 2020 and not return to yearend-2019 levels until as late as 2022. I continue to believe that this forecast is overly pessimistic. Firstly, average sales prices are highly misleading, especially on a national basis because they vary so much depending on the location of the activity, as well as the types of property sold.

There is no national housing market. All housing markets are local. A glance at Table 1 above shows a wide variation in regional sales price action, but if anything, trends appear to be converging on moderate positive pressure on prices. Today’s economic recession is like no other. The record stimulus introduced by the Bank of Canada and the federal government will assure that the housing markets will continue to function, even with social-distancing measures in place, and those who enjoy steady employment will proceed in due course with regular housing decisions.

Those who permanently lose their jobs are the real concern. Many of those people will be in the hardest hit and slowest-to-recover sectors of our economy, such as hospitality (accommodation and food), non-essential retail trade, and the leisure industry (arts, entertainment and recreation). Statistics Canada census data for 2016 in the table below, shows that the homeownership rate in these sectors is relatively low. Unfortunately, most of those who will be hardest hit by the pandemic can least afford it. This is an issue that fiscal policy must address, investing in retraining programs and universal income guarantees.

Dr. Sherry Cooper

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.

25 Jun

Governor Macklem Affirms No Negative Interest Rates

General

Posted by: Greg Domville

Governor Macklem Affirms No Negative Interest Rates

First Formal Remarks By Tiff Macklem, Bank of Canada Governor

There were no surprises this morning from Governor Macklem’s virtual presentation to the Canadian Clubs of Canada. His opening written statement was quite brief and it was followed up with a Q and A. Here are the key points that he emphasized.

  • Negative interest rates are off the table as they “lead to distortions in the behaviour of financial markets.”
  • Therefore, no additional Bank of Canada rate cuts is coming.
  • The BoC will continue its securities purchase program to provide liquidity to financial markets.
  • In response to questions, he said he expects lasting damage to demand and supply in the economy. He said the recovery will be “long and bumpy” and “slow and gradual”.
  • The inflation target of 2% will remain the beacon for BoC policy. Currently, inflation is below target.
  • “This recession is a deep one. Women have been particularly hard hit because they work disproportionately in the hard-hit service sector and women are disproportionately caring for children and the elderly”.
  • Fiscal support programs lay the foundation for the recovery of particular groups.
  • Oil-producing regions are hard hit by the oil price shock. The price of oil has moved up recently to WTI $40, but the pandemic clearly “weakens oil demand”.
  • Household debt levels are a concern. Fiscal transfers help and households have reduced their spending. The role of the BoC is to provide the required stimulus to encourage households to spend. The macroprudential measures already in place will discourage highly indebted households from taking on more debt.
  • He expects “pretty good growth in jobs and GDP in Q3”. Beyond that is more uncertain as we will need to repair the economy.
  • All institutions must speed up actions to deal with climate change, including the BoC. We will need to get a handle on the implications of this for the economy.
  • Chartered banks are more conservative in their lending practices since the pandemic hit. The securities-purchase programs are intended to keep credit flowing from the banks. The banks are an important shock absorber during this recession. Conditions in financial markets are much improved since the beginning of the crisis. “Markets have normalized and credit is flowing more freely”.
  • Both the government and the BoC have introduced extraordinary programs to deal with this crisis. He said, however, that we could use “additional international assistance and cooperation”.
  • Real estate question–How much risk does this sector represent? The Governor commented that different sectors will behave differently Warehouse and fulfillment centre demand is quite strong. Commercial real estate outlook is uncertain– particularly office space and shopping malls. Housing–he commented that “sharp drops in housing activity” has led to “little change in prices” thus far. This will vary by region and type of housing in the future.  
  • “The pace of change is accelerating. Societies around the world are having trouble keeping up. The central bank must get ahead of this” and be prepared for the unknowns, be agile and resolute.
  • Asked about the potential for a second wave of a pandemic, he said, “The outlook is fraught with uncertainty. The biggest uncertainty is the course of the virus. There will be increases in the number of cases. We need testing and tracing with quick responses locally. We need to determine how to open up safely.”
  • When asked for his last word, he said, “We are going to get through this. Canadians are resourceful, business ingenuity is strong, this will be a long slow recovery and there will be setbacks. We have avoided the worst scenario. Not all jobs will come back. The Bank is laser-focused on supporting this recovery and getting Canadians back to work”.
Dr. Sherry Cooper

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.

9 Apr

The Math on Mortgage Deferrals

General

Posted by: Greg Domville

The Math on Mortgage Deferrals

The Real Costs. The Facts. The Myths.

There are opinions and articles circulating that say taking the 6 month mortgage deferral option could result in your payments increasing by $800 a month at the end of the deferral period. This is just not so. You’ve probably also heard that lenders will charge interest on top of interest and that this is going to cost you a fortune. Well it’s not going to cost you a fortune. Let’s do the real math here.

Let’s take a $400,000 mortgage at a 3.0% interest rate on a 5 year fixed term that originally had a 25 year amortization, meaning the life of the mortgage is 25 years. The monthly payment is about $1,900. Now let’s say the borrowers are two and a half years into their five year term and decide to take the 6 month deferral option. They will save $11,400 in cash flow over this 6 month deferral period by not paying principal and interest. Now it’s true that the lender will likely charge interest each month on the interest that was never paid. In technical terms, this is called monthly compounding.

At the end of the 6 month deferral period, the mortgage balance is now higher than it would have been by the principal that was never paid down and the additional interest costs. The additional interest costs amount to approximately $75 over the 6 month deferral period in this case. But the mortgage amount is now higher and there are 2 years left in the mortgage term and 22 years remaining in the life of the mortgage. Since the new payments of $1,960 per month are recalculated based on the remaining life of the mortgage, the additional interest cost over the next 2 years in the term is another $650, and the borrowers will also pay another $3,525 in interest over the final 20 years remaining in the life of the mortgage. The grand total in extra interest costs is about $4,250 over the next 22 years for the benefit of deferring $11,400 for 6 months, and the payments only went up by $60 per month.

How about another example looking at an $800,000 mortgage with a 3.0% interest rate on a 2 year fixed term and a remaining life of 15 years? This is a more aggressive mortgage situation. The monthly payment starts at $5,525 and the borrowers decide to take the 6 month deferral option with 1 year left in the term, saving $33,150 in cash flow over the deferral period. After the deferral period the new monthly payment goes up by $250 per month, not $800 per month, and the total additional interest cost for taking the deferral option is $7,450 spread over more than 13 years.

Different lenders have different methods for their deferral program, but this is generally what we are seeing from many lenders. Some lenders are keeping the same monthly payment amount until the end of the mortgage term, which means the interest cost will be slightly higher because the principal is not being paid down as fast, and the payment will go higher at renewal.

The deferral programs are meant to address those facing financial hardship and difficulties making payments, and each lender has its own policies on how much evidence they require to prove this. For those that are in this situation, there are certainly additional costs with taking the deferral option, as there should be. But they are certainly not as high as some of the perceptions and expectations out there that I’ve come across, which seem to be fear driving fiction rather than balancing the facts. There is a significant benefit of being able to save on cash flow during this difficult time period ahead and lenders have offered this program because they know it can help their clients. So from a purely mathematical point of view, if you can make your mortgage payments, make them and avoid the additional interest costs, but if you qualify for the deferral and need it, don’t fear it, it’s not as costly as some of the rumours and misguided advice out there. And you can always use your prepayment feature to bring the principal amount back down again once you have the funds to do so.

Todd Skene is a mortgage professional with DLC Clear Trust Mortgages in Vancouver, BC

Todd Skene

Dominion Lending Centres – Mortgage Professional

3 Mar

5 Mistakes First Time Home Buyers Make

General

Posted by: Greg Domville

5 Mistakes First Time Home Buyers Make

Buying a home might just be the biggest purchase of your life—it’s important to do your homework before jumping in! We have outlined the 5 mistakes First Time Home Buyers commonly make, and how you can avoid them and look like a Home Buying Champ.

1. Shopping Outside Your Budget
It’s always an excellent idea to get pre-approved prior to starting your house hunting. This can give you a clear idea of exactly what your finances are and what you can comfortably afford. Your Mortgage Broker will give you the maximum amount that you can spend on a house but that does not mean that you should spend that full amount. There are additional costs that you need to consider (Property Transfer Tax, Strata Fees, Legal Fees, Moving Costs) and leave room for in your budget. Stretching yourself too thin can lead to you being “House Rich and Cash Poor” something you will want to avoid. Instead, buying a home within your home-buying limit will allow you to be ready for any potential curve balls and to keep your savings on track.

 

2. Forgetting to Budget for Closing Costs
Most first-time buyers know about the down payment, but fail to realize that there are a number of costs associated with closing on a home. These can be substantial and should not be overlooked. They include:

  • Legal and Notary Fees
  • Property Transfer Tax (though, as a First Time Home Buyer, you might be exempt from this cost).
  • Home Inspection fees

There can also be other costs included depending on the type of mortgage and lender you work with (ex. Insurance premiums, broker/lender fees). Check with your broker and get an estimate of what the cost will be once you have your pre-approval completed.

3. Buying a Home on Looks Alone
It can be easy to fall in love with a home the minute you walk into it. Updated kitchen + bathrooms, beautifully redone flooring, new appliances…what’s not to like? But before putting in an offer on the home, be sure to look past the cosmetic upgrades. Ask questions such as:

  1. When was the roof last done?
  2. How old is the furnace?
  3. How old is the water heater?
  4. How old is the house itself? And what upgrades have been done to electrical, plumbing, etc.
  5. When were the windows last updated?

All of these things are necessary pieces to a home and are quite expensive to finance, especially as a first- time buyer. Look for a home that has solid, good bones. Cosmetic upgrades can be made later and are far less of a headache than these bigger upgrades.

4. Skipping the Home Inspection
In a red-hot housing market a new trend is for homebuyers to skip the home inspection. This is one thing we recommend you do not skip! A home inspection can turn up so many unforeseen problems such as water damage, foundational cracks and other potential problems that would be expensive to have to repair down the road. The inspection report will provide you a handy checklist of all the things you should do to make sure your home is in great shape.

5. Not Using a Broker
We compare prices for everything: Cars, TV’s, Clothing… even groceries. So, it makes sense to shop around for your mortgage too! If you are relying solely on your bank to provide you with the best rate you may be missing out on great opportunities that a Dominion Lending Centres mortgage broker can offer you. They can work with you to and multiple lenders to find the sharpest rate and the best product for your lifestyle.

Geoff Lee

Geoff Lee

Dominion Lending Centres – Accredited Mortgage Professional

3 Mar

Morneau Eases Stress Test On Insured Mortgages

General

Posted by: Greg Domville

Morneau Eases Stress Test On Insured Mortgages

Minister Morneau Announces New Benchmark Rate for Qualifying For Insured Mortgages

The new qualifying rate will be the mortgage contract rate or a newly created benchmark very close to it plus 200 basis points, in either case. The News Release from the Department of Finance Canada states, “the Government of Canada has introduced measures to help more Canadians achieve their housing needs while also taking measured actions to contain risks in the housing market. A stable and healthy housing market is part of a strong economy, which is vital to building and supporting a strong middle class.”

These changes will come into effect on April 6, 2020. The new benchmark rate will be the weekly median 5-year fixed insured mortgage rate from mortgage insurance applications, plus 2%.

This follows a recent review by federal financial agencies, which concluded that the minimum qualifying rate should be more dynamic to reflect the evolution of market conditions better. Overall, the review concluded that the mortgage stress test is working to ensure that home buyers are able to afford their homes even if interest rates rise, incomes change, or families are faced with unforeseen expenses.

This adjustment to the stress test will allow it to be more representative of the mortgage rates offered by lenders and more responsive to market conditions.

The Office of the Superintendent of Financial Institutions (OSFI) also announced today that it is considering the same new benchmark rate to determine the minimum qualifying rate for uninsured mortgages.

The existing qualification rule, which was introduced in 2016 for insured mortgages and in 2018 for uninsured mortgages, wasn’t responsive enough to the recent drop in lending interest rates — effectively making the stress test too tight. The earlier rule established the big-six bank posted rate plus 2 percentage points as the qualifying rate. Banks have increasingly held back from adjusting their posted rates when 5-year market yields moved downward. With rates falling sharply in recent weeks, especially since the coronavirus scare, the gap between posted and contract mortgage rates has widened even more than what was already evident in the past two years.

This move, effective April 6, should reduce the qualifying rate by about 30 basis points if contract rates remain at roughly today’s levels. According to a Department of Finance official, “As of February 18, 2020, based on the weekly median 5-year fixed insured mortgage rate from insured mortgage applications received by the Canada Mortgage and Housing Corporation, the new benchmark rate would be roughly 4.89%.”  That’s 30 basis points less than today’s benchmark rate of 5.19%.

The Bank of Canada will calculate this new benchmark weekly, based on actual rates from mortgage insurance applications, as underwritten by Canada’s three default insurers.

OSFI confirmed today that it, too, is considering the new benchmark rate for its minimum stress test rate on uninsured mortgages (mortgages with at least 20% equity).

“The proposed new benchmark for uninsured mortgages is based on rates from mortgage applications submitted by a wide variety of lenders, which makes it more representative of both the broader market and fluctuations in actual contract rates,” OSFI said in its release.

“In addition to introducing a more accurate floor, OSFI’s proposal maintains cohesion between the benchmarks used to qualify both uninsured and insured mortgages.” (Thank goodness, as the last thing the mortgage market needs is more complexity.)

The new rules will certainly add to what was already likely to be a buoyant spring housing market. While it might boost buying power by just 3% (depending on what the new benchmark turns out to be on April 6), the psychological boost will be positive. Homebuyers—particularly first-time buyers—are already worried about affordability, given the double-digit gains of the last 12 months.

Dr. Sherry Cooper

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.

3 Mar

Fed Emergency 50 BP Rate Cut

General

Posted by: Greg Domville

Fed Emergency 50 BP Rate Cut

The Fed Brings Out The Big Guns

In a remarkable show of force, the US Federal Reserve jumped the gun on its regularly scheduled meeting on March 18 and cut the target overnight fed funds rate by a full 50 basis points (bps) to 1%-to-1.25%. This now stands well below the Bank of Canada’s target rate of 1.75% and may well force the Bank’s hand to cut rates when it meets tomorrow, possibly even by 50 bps.

The Fed has not cut rates outside of its normal cycle of meetings since October 8, 2008, as the collapse of Lehman Brothers roiled financial markets. Such moves are rare, but not unprecedented.

The BoC is conflicted, in that such a dramatic rate cut would fuel household borrowing and the housing market, which the Bank considers to be robust enough.

The Federal Open Market Committee (FOMC, the Fed’s policymaking group) released the following statement: “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1‑1/4 percent. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.”

In an 11 AM (ET) news conference, Chairman Powell said the broader spread of the virus poses an evolving risk to the economy that required immediate action. The FOMC judged the risk to the economy had worsened. The Fed acted unilaterally, in contrast to the coordinated central bank move taken during the financial crisis in 2008.

However, the Fed is in active discussion with other central banks around the world, and the European Central Bank indicated earlier today that they would take any necessary actions. Central banks in the euro-area and Japan have less scope to follow with rates already in negative territory.

Governor Carney said earlier today that the Bank of England would take steps needed to battle the virus shock. Carney hinted at the complexity of dealing with the trauma for central banks in assessing whether the impact falls on demand — which they have more capacity to address — or supply — which is harder to for central banks to treat.

G-7 finance chiefs and central bankers are scheduled to have a rare conference call today.

With election tensions running strong in the US–after all, today is Super Tuesday–it’s easy to imagine that this move by the Fed is as much political as economic. It comes amid public pressure for a rate cut by President Trump. Moreover, following today’s dramatic move, the president called for more, demanding in a tweet that the Fed “must further ease and, most importantly, come into line with other countries/competitors. We are not playing on a level field. Not fair to USA.” 

Politicizing the Fed is dangerous and reduces the global credibility of the US central bank.

Stock markets around the world reversed some of today’s earlier losses on the news. The US stock markets opened today with a significant selloff following a rally yesterday. Bond yields continued to decline on the news.

Bottom Line for Canada: The key government of Canada 5-year bond yield has fallen sharply today to 0.925% and falling at the time of this writing. The 5-year yield was 1.04% before the Fed’s announcement. The Bank of Canada will likely cut overnight rates tomorrow for the first time since October 2018–but by how much? I would guess by 25 bps given Poloz’s concern about household debt.

Dr. Sherry Cooper

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.

13 Nov

Raise your credit score in 3 months

General

Posted by: Greg Domville

Raise your credit score in 3 months

While people often think of mortgage brokers when they are first time home buyers, we can help people in a variety of different ways.
Recently Garrett LaBarre of Calvert Home Mortgages in Calgary shared a success story with brokers. He had a client referred to him by a mortgage broker who had a conundrum. She was paying her credit card balances on time month after month, but couldn’t get them paid down due to the high interest rates. As a result, she had a 567 credit beacon score. Her bank would not refinance her mortgage or offer her a debt consolidation loan. She was stuck.
The solution was to use some of the equity in her home to pay off the credit card debt and lower the payments to a more manageable monthly. Even though her mortgage interest rate was higher than a regular lender, it was a lot lower than a credit card rate and it was amortized over 30 years.
The result was that within three months this client had her credit score jump from 567 to 769!
What an amazing result. Now there’s one more person who knows that mortgage brokers can do things that the banks can’t do.
If you have a challenging story, be sure to contact your local Dominion Lending Centres mortgage professional for help.

David Cooke
Dominion Lending Centres – Accredited Mortgage Professional