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Another Weak Canadian Jobs Report For May. Canada’s Jobs Recovery Derailed By Third-Wave Restriction
General Mitchell Goode 7 Jun
General
The Latest in Mortgage News: Have Home Prices Peaked?
General Mitchell Goode 7 Jun
The seemingly endless run-up in home prices seems to have reached a peak, at least for now.
May home sales data from some of the country’s real estate boards showed sales and prices still growing in some regions, but down for their second consecutive month in others following the peak in March.
The following is a summary of activity in May for select cities. Keep in mind that year-over-year changes are now skewed due to the dip in activity during the height of the lockdown restrictions last spring.
Toronto (Toronto Regional Real Estate Board)
- Home sales: 11,951 (+15% above the 10-year average)
- Average sale price: $1,108,453 (+30% year-over-year)
Vancouver (Greater Vancouver Real Estate Board)
- Home sales: 4,268 (-13%)
- Average price (single-detached home): $1,800,600 (+22.8%)
- Average price (condo): $737,100 (+1.2%)
Montreal (The Quebec Professional Association of Real Estate Brokers)
- Home sales: 5,398 (-13.5% year-over-year)
- Average price (single-family home): $496,000 (+34%)
- Average price (condo): $365,000 (+30%)
“The return to lower, more sustainable levels of activity continued last month across major Canadian markets,” wrote Robert Hogue of RBC Economics. “Despite showing eye-catching increases from a year ago—entirely reflecting depressed comparison points in May 2020—our read of early reports from local real estate boards is home resales fell broadly from April to May.”
Mortgage Arrears Remain at Historic Lows
With the mortgage payment deferral program now in the rear-view mirror, the percentage of mortgage arrears has remained at historical norms.
Only 0.22% of mortgages from the chartered banks are currently in arrears, according to the latest (March 2021) data from the Canadian Bankers Association.
The national arrears rate hasn’t been lower than that since June 1990, and is well below the peak of 0.65% seen in January 1997.
The rate is lowest in Ontario (0.09%) and highest in Saskatchewan at 0.76%.
More Seniors to Rely on Home Equity as Part of Retirement Planning
General Mitchell Goode 2 Jun
Almost 8 in 10 Canadians over the age of 55 believe they can’t rely on registered savings and pension plans alone to support a comfortable retirement.
Roughly half say that home equity is a vital part of retirement planning, yet many don’t want to downsize from their current home, according to an Ipsos survey commissioned by HomeEquity Bank.
For those unwilling to sell their home to access that liquidity, that leaves reverse mortgages and potentially home equity lines of credit as the most likely sources of equity take-out during retirement.
That’s why HomeEquity Bank, one of two providers of reverse mortgages in Canada, has launched a new national campaign to raise awareness that older Canadians don’t necessarily want to sell and downsize their home, despite 76% of them saying their demographic feels pressure to do so.
“Downsizing isn’t as attractive as it used to be,” said HomeEquity Bank President and CEO Steven Ranson. “Given the amount of risk associated with moving and finding another suitable home, more than a quarter of older homeowners are considering accessing the equity in their homes instead of selling to help fund their retirements.”
A survey from the National Institute on Aging reported similar findings, with nine out of 10 Canadians saying they want to stay in their homes as long as possible in their golden years.
The Retirement Income Gap
Looking at the average base income Canadian seniors can expect in retirement, it’s easy to see why a growing number are open to tapping into their home equity as a supplement.
Seniors derive income in retirement through three primary sources. Those are:
- Canadian Pension Plan (CPP): The average amount for a 65-year-old as of January 2021 was $736.58.
- Old Age Security (OAS): The average amount reported by the Government of Canada was $618.45.
- Retirement Savings Withdrawals (RRSP): A BMO study found that the average RRSP balance for Baby Boomers (those 57 to 75 years old) was $178,664.
All told, the above works out to roughly $2,100 per month in retirement income.
Reverse Mortgages Continue to See Strong Growth
Rapidly rising home values have been a boon to seniors who are considering a reverse mortgage, which in turn has helped fuel reverse mortgage growth.
In 2020, Canadian seniors added $408 million in new reverse mortgage debt, bringing the total reverse mortgage debt outstanding to $4.42 billion, according to data from the Office of the Superintendent of Financial Institutions.
That’s up 12.5% from the year before and a whopping 367% jump from $898.5 million in 2011.
Equitable Bank, the other reverse mortgage provider in Canada, reported volume growth in Q1 2021 of +44% from the previous quarter and +241% year-over-year.
“Demand for the Bank’s reverse mortgage products accelerated due to low interest rates, record property values and a strong preference for aging in place and is expected to further increase as the Canadian market is under-served compared to international benchmarks…,” the company said in its earnings release.
Article From: https://www.canadianmortgagetrends.com/2021/06/more-seniors-to-rely-on-home-equity-as-part-of-retirement-planning/
Housing is Driving The Canadian Economy. Housing Drove the Economic Expansion in Q1
General Mitchell Goode 2 Jun
This morning’s Stats Canada release showed that the economy grew at a 5.6% annualized rate in the first quarter, after a revised 9.3% pace in the final quarter of last year. That was somewhat below economists’ expectations. Housing investment grew at an annualized 43% pace, by far the biggest impetus of the expansion. Residential investment now makes up a record proportion of GDP (see chart below). Compared with the first quarter of 2020, housing investment was up 26.5% and led the recovery. Growth in housing was attributable to an improved job market, higher compensation of employees, and low mortgage rates. After adding $63.6 billion of residential mortgage debt in the last half of 2020, households added $29.6 billion more in the first quarter of 2021.
Residential investment is a component of the Gross Domestic Product accounts and is technically called ‘gross fixed capital formation in residential structures’ by Statistics Canada. Investment in residential structures is comprised of three components: 1) new construction, 2) renovations and 3) ownership transfer costs. The first two components are obvious.
The home-resale market’s contribution to economic activity is reflected in ‘ownership transfer costs.’ These costs are as follows:
- real estate commissions–including realtors and mortgage brokerage fees;
- land transfer taxes;
- legal costs (fees paid to notaries, surveyors, experts etc.); and
- file review costs (inspection and surveying).
The second chart below shows the quarterly percent change in the components of housing investment in inflation-adjusted terms. This chart illustrates the surge in existing home sales since the second quarter of last year (reflected in the red bar). Although the resale market has slowed since the third quarter of last year, it remains a driving force of economic expansion.
Growth in housing investment was broad-based. New construction rose 8.7% (quarter-over-quarter), largely driven by detached units in Ontario and Quebec. Ownership transfer costs increased 13.1%, with the rise in resale activities. Working from home and extra savings from reduced travel heightened the demand for, and scope of, home renovations, which grew 7.0% in the first quarter.
The increase in GDP in the first quarter of 2021 reflected the continued strength of the economy, influenced by favourable mortgage rates, continued government transfers to households and businesses, and an improved labour market. These factors boosted the demand for housing investment while rising input costs heightened construction costs.
The GDP implicit price index, which reflects the overall price of domestically produced goods and services, rose 2.9% in the first quarter, driven by higher prices for construction materials and energy used in Canada and exported. The sharp increase in prices boosted nominal GDP (+4.3%). Compensation of employees rose 2.1%, led by construction and information and cultural industries, and surpassed the pre-pandemic level recorded at the end of 2019.
Strength in oil and gas extraction, manufacturing of petroleum products, and construction industries led to a higher gross operating surplus for non-financial corporations (+11.5%). Higher earnings from commissions and fees bolstered the operating surplus of financial corporations (+3.9%), coinciding with the sizeable increases in the value and volume of stocks traded on the Toronto Stock Exchange (TSX).
Most aspects of final sales were solid in Q1, with consumers a bit stronger than expected (2.8% a.r.), government adding (5.8%), and net exports also contributing. In contrast, business investment was one real source of disappointment, with equipment spending surprisingly falling. But the biggest drag came from a drop in inventories, with this factor alone cutting growth 1.4 ppts in Q1, and versus expectations, it could add a touch. The good news is that this should reverse in Q2, supporting activity in the current quarter.
On the monthly figures, there were few big surprises. March’s initial flash estimate of +0.9% was nudged up in the official estimate to +1.1% as the economy began to re-open from the second wave. Tougher COVID public health rules slammed the brakes on Canada’s economy in April. Statistics Canada estimates gross domestic product shrank 0.8% in the month, representing the first contraction in a year and a weak handoff heading into the second quarter. April may well be followed by a soft May. Even so, we still expect a strong June will keep Q2 roughly flat overall and look for robust Q3 growth.
Bottom Line
In many respects, Q1 data is ancient history. We know with the resurgence in lockdowns, growth in Q3 will at best be flat. In the hopes that vaccinations will accelerate and COVID case numbers will continue to fall across the country, Q4 will likely see a strong resurgence in growth
Article From: https://sherrycooper.com/category/articles/
First Responder Mortgage Program
General Mitchell Goode 28 May
Excited to launch our exclusive First Responder Mortgage Program, offering better rates and cash back incentives. It’s our way of saying thank you!
JUNE 1St 2021
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Insured and Uninsured Mortgage Stress Test Changes Confirmed for June 1
General Mitchell Goode 27 May
Starting June 1, both insured and uninsured mortgage borrowers will be subject to a stricter stress test when qualifying for their mortgage.
The Office of the Superintendent of Financial Institutions (OSFI) confirmed on Thursday that it will move ahead with its stress test changes first announced last month, which will apply to uninsured mortgages (typically those with more than a 20% down payment).
Soon after, the Department of Finance confirmed it will follow OSFI’s lead, and apply the same higher qualifying rate to insured mortgages, or those with less than 20% down.
In both cases, borrowers will need to prove they can afford payments based on the higher of the contract rate plus 2%, or a new floor rate of 5.25%, up from the current 4.79%.
“The recent and rapid rise in housing prices is squeezing middle class Canadians across the entire country and raises concerns about the stability of the overall market,” Finance Minister Chrystia Freeland said in a statement. “The federal government will align with OSFI by establishing a new minimum qualifying rate for insured mortgages…It is vitally important that homeownership remain within reach for Canadians.”
Both OSFI and the DoF said they will review the floor rate annually, likely each December at a minimum.
The Impact on Borrowers
Applying the higher stress test to insured borrowers will impact roughly 1 in 5 mortgage borrowers, according to data from the Bank of Canada. It will also take direct aim at first-time borrowers who are more likely to be putting less than 20% down on a mortgage.
The higher minimum stress test is expected to cut maximum buying power by between 4% and 4.5%. For a median-income household, that would reduce the maximum purchase price from $442,000 to $422,000, according to previous estimates from National Bank.
It’s estimated that this change will reduce purchasing power for uninsured borrowers by between 4% and 4.5%. By comparison, the B-20 stress test implemented in January 2019 requiring homebuyers to qualify at the higher of either the 5-year posted rate or the contractual rate plus 200 basis points reduced purchasing power by 22%.
“Today’s news is both bad news and good news for (first-time buyers),” wrote Rob McLister, mortgage editor at RATESDOTCA. “Obviously, it cuts buying power, but that also means fewer people will be able to bid as much for homes, reducing some price pressure.”
Mortgage Professionals Canada issued a statement to members on Thursday, noting it was disappointed that the minister decided to move so quickly in applying the stricter stress test to insured mortgages.
“Given the traditional audience for insured mortgages, namely young aspiring middle-class families, single individuals, and the recently separated, all owner occupiers of the properties they purchase, MPC would have preferred the insured qualification rate had not been increased in the interest of this community,” the association said. “Given the rapid rise in prices, making qualification more stringent now will disqualify many of the Canadians the government has promised to support.”
Bank of Canada Concerned About Home Prices, Household Debt
The new stress test changes fell on the same day that the Bank of Canada voiced concern about unsustainable house prices and growing household debt.
“It is important to understand that the recent rapid increases in home prices are not normal,” Bank of Canada Governor Tiff Macklem said following the release of the Bank’s annual Financial System Review, which found the share of highly indebted households taking out mortgages is now up to 22%.
“Some people may be thinking that the kind of price increases we have seen recently will continue. That would be a mistake,” Macklem added. “Interest rates are very low. That means there is more potential for them to go up…Borrowers and lenders both have roles in ensuring that households can still afford to service their debt at higher rates.”
The Bank also unveiled a “House Price Exuberance Indicator” meant to measure nine major markets across Canada for expectations that local home prices will continue to rise. The indicator currently finds that the Toronto region, Montreal and Hamilton are in exuberant territory, with Ottawa not far off.
– Steve Huebl
Housing Market Slowed in April as Renewed Lockdown Took Its Toll
General Mitchell Goode 26 May
Starting to See A Slowdown In Canadian Housing
Today, the Canadian Real Estate Association (CREA) released statistics showing national existing home sales fell 12.4% nationally from March to April 2021. Over the same period, the number of newly listed properties fell 5.4%, and the MLS Home Price Index rose 2.4%.
While home sales fell month-over-month in April, largely due to the new lockdowns, April sales were still the strongest ever for that month and well above the 10-year monthly average.
Month-over-month declines in sales activity were observed in close to 85% of all local markets, including virtually all of B.C. and Ontario.
New Listings
The number of newly listed homes declined by 5.4% in April compared to March. In a market with historically low inventory, where sales activity depends on a steady supply of new listings each month, the synchronous gains in new supply and sales in March followed by synchronous declines in April suggest the slowdown in sales may be partially about the availability of listings as opposed to only a demand story. New listings were down in 70% of all local markets in April.
The national sales-to-new listings ratio eased back to 75.2% in April compared to a peak level of 90.6% back in January. That said, the long-term average for the national sales-to-new listings ratio is 54.5%, so it is currently still high historically. The good news is that it is moving in the right direction.
Based on a comparison of sales-to-new listings ratio with long-term averages, only about a quarter of all local markets were in balanced market territory in April, measured as being within one standard deviation of their long-term average. The other three-quarters of markets were above long-term norms, in many cases well above.
There were 2 months of inventory on a national basis at the end of April 2021, up from a record-low 1.7 months in March but still well below the long-term average for this measure of a little more than 5 months.
In a separate release, Canadian housing starts fell to 268,600 annualized units in April from the blowout (334.8k) month in March. While down sharply month-over-month, this is still a solid level of new construction activity in Canada by historical standards. In fact, average annualized starts over the past six months run at the strongest level on record, topping building booms in the 1970s and 1980s. All regions but the Prairies and Atlantic Canada saw lower starts in April.
Home Prices
The Aggregate Composite MLS® Home Price Index (MLS® HPI) climbed by 2.4% month-over-month in April 2021 – a historically strong gain but less than in February and March. Most of the recent deceleration in month-over-month price growth has come from the single-family space compared to the more affordable townhome and apartment segments.
The non-seasonally adjusted Aggregate Composite MLS® HPI was up 23.1% on a year-over-year basis in April. Based on data back to 2005, this was a record year-over-year increase.
The largest year-over-year gains continue to be posted across Ontario (around 20-50%), followed by markets in B.C., Quebec and New Brunswick (around 10-30%), and lastly by gains in the Prairie provinces and Newfoundland and Labrador (around 5-15%).
The MLS® HPI provides the best way to gauge price trends because averages are strongly distorted by changes in the mix of sales activity from one month to the next.
The actual (not seasonally adjusted) national average home price was slightly under $696,000 in April 2021, up 41.9% from the same month last year. That said, it is important to remember that the national average price dropped by 10% month-over-month last April as the higher-end of every market effectively shut down for a couple of months. That will serve to stretch these year-over-year comparisons over and above what is actually happening to prices until around June.
By segment: Single-detached remains extremely strong, but earlier signs that condo markets in the large cities were tightening up continue to play out. Condo prices were up 8.5% y/y in April, the strongest pace since mid-2018, and price gains are now running even stronger month-to-month in the biggest cities. We continue to expect these markets to come back stronger than most might think.
By region: It’s as close to wall-to-wall strength that we’ve probably ever seen in this country. Long-dormant markets like Calgary and Edmonton are awake again with prices up roughly 9% y/y; Toronto, Montreal and Vancouver remain strong as usual; some smaller markets (think Halifax, Moncton, Southwestern Ontario) are even stronger than the big cities; and cottage country is booming.
Bottom Line
Headlines will probably flag housing market declines in April, but don’t that fool you…this market is still robust across geography and segment, even if we’ve likely seen peak momentum. Activity will likely remain strong this summer, especially if the COVID restrictions are eased, and people begin to get their second vaccine.
Article from: https://sherrycooper.com/category/articles/