Housing construction slows in April, but no crash yet – CBC
Housing starts are beginning to slow to a more sustainable rate, as the seasonally adjusted annual rate of urban starts was down 2.5 per cent in April. The decline occurred primarily in the condo markets of Ontario, British Columbia and Atlantic Canada. This trend could signal an end to the housing boom and ease economic stability concerns from the International Monetary Fund and the Bank of Canada. Overall, housing indicators such as starts, resales, building permits, and prices have lowered since July 2012, when Jim Flaherty placed tighter regulations on mortgages and lending practices. Departing Bank of Canada Governor Mark Carney told a parliamentary committee last month that all housing indicators were going in the right direction and that household debt accumulation had stabilized. The April housing starts figures were in line with economist expectations and were below the first quarter average, as housing starts did rise in Quebec and the Prairies, partially offsetting the decreases from other provinces.
Changes coming fast atop shrinking CMHC – Financial Post
There are fundamental changes playing out privately at the Canadian Mortgage and Housing Corporation (CMHC), as a new chairman of the board has been chosen and a replacement for CEO Karen Kinsley will soon be announced. Robert P. Kelly, a former Wall Street banker and a veteran Canadian financial services executive, has been named chairman of the board. In addition, stricter regulatory changes began in March, when Flaherty placed the CMHC under the auspices of the Office of the Superintendent of Financial Institutions (OSFI) which regulates Canadian banks and insurance companies. Sources indicate that the OSFI will initiate an extensive risk management review of the CMHC. These regulations are part of governmental efforts to ensure that the CMHC’s commercial activities are undertaken in a way that will promote overall stability of the financial system. Flaherty has criticized several commercial functions of the CMHC, specifically their willingness to provide default insurance on mortgage loans with more than a 20% down payment, which is not required by law. Continue reading
The following post is by Jason Friesen, a mortgage broker with Premiere Mortgage Centre in Toronto, Ontario.
There is a little known program that you might be able to take advantage of, which could increase your chances of finding a home – especially in a market where bidding wars are the norm and you may not have the money to buy a “fixer upper”. With it, you may be able to purchase a home that otherwise may have been overlooked, due to the fact that it was in need of a little TLC. Whether it’s a new kitchen, bathroom, windows, flooring, etc. this program gives you the flexibility to purchase a home and include the cost of renovations in your purchase.
The CMHC Improvements program gives qualified buyers the ability to borrow up to 10 per cent of the as-improved value of a home to put towards the cost of renovations and include it in their mortgage loan amount. Formerly known as the Purchase Plus Improvements program, this flexible financing option is offered by the Canada Mortgage and Housing Corporation (CMHC) – the government insurer of mortgage loans taken out with less than a 20 per cent down payment.
To give you an example of how it works, let’s say the purchase price of a home is $500,000. If the renovation you want to complete would result in the value of the home going up by $50,000, for an as-improved value of $550,000, you could borrow 10% of that ($55,000) for your renovation. This is an ideal option for first-time homebuyers who typically have smaller down payments and can’t afford to both put money down and pay for any renovations they want to do as soon as they take possession. Continue reading
CMHC Releases Tenth Annual Review of the State of Housing in Canada – CMHC
CMHC has released its tenth annual Canadian Housing Observer report, which gives a broad range of statistical information on the state of the Canadian housing market. The report is available both online and in print and, new for 2012, readers can now access interactive data tables that provide local reports on various housing indicators for over 160 municipalities.
Some of the important highlights in the Observer include:
- Of the major urban cities, Moncton experienced the highest growth in the number of households (followed by Kelowna, St. John’s and Calgary)
- Spending on home renovation grew 3% in 2011 to $43.8 billion
- In 2011, the average resale price of a home in Canada was $363,116
- The highest average price was $779,730 in Vancouver
- The lowest average price was $156,919 in Trois-Rivières
- In 2011, housing starts were 194,000 units, a 2.1% increase from last year
- The net worth of Canadian households increased in 2011 by roughly $7,000 (adjusted for inflation) Continue reading
The CMHC is cautiously optimistic about the B.C. housing market – Vancouver Courier
This week, the Canada Mortgage and Housing Corporation (CMHC) held press conferences in major cities across Canada. Surprisingly, the nation’s largest mortgage insurer held an optimistic view on the housing market in British Columbia. The confidence is rooted in three indicators of economic stability: persistent low mortgage rates, improving employment numbers, and increasing provincial migration. Employment in Vancouver is expected to grow by 2.9 per cent this year and 2.2 per cent next year. Immigration is expected to increase by 30 per cent this year, from last year, and by approximately 18 per cent in 2013. One positive stat from Citizenship and Immigration Canada shows that 17 per cent of new immigrants become homeowners within six months and more than 50 per cent are homeowners within four years. CMHC’s caution arises from the nine months of housing inventory that is currently flooding the market. The mortgage insurance giant expects housing supply normalization by mid-2013.
New guidelines for Canada’s mortgage insurers coming next year – Globe and Mail
Canada’s financial watchdog, the Office of the Superintendent of Financial Institutions (OSFI) will release new guidelines for the nation’s mortgage insurers early next year. Affected by the changes will be the CMHC, Genworth Canada, and Canada Guaranty. OSFI advises that the new mortgage guidelines won’t impact the housing market to the same extent as the mortgage rules for the banks have. The new guidelines will affect the mortgage policy underwriting for homes. Spearheading the policy changes will be Julie Dickson, the regulator’s superintendent. “We are in a market where there is a lot of growth in household debt, some froth, and I think whenever you see that you have to act early and try to ensure that people aren’t forgetting sound practices,” said Ms. Dickson.
Mortgage trends on Google – Canadian Mortgage Trends
According to David Resnick, Head of Financial Services at Google, “mortgages are the fastest growing (search) sector in the financial services by far.” Resnick offered Canadian Mortgage Trends some interesting insight into mortgage-related searches on Google. A mortgage broker that ranks high in Google means that that broker is active in search engine marketing and takes their online business seriously.
The mortgage-related keywords searched most in 2012 so far have been:
- “mortgage calculator”
- “mortgage rates”
- “new mortgage rules”
- “BMO 2.99%” *
*Following the release of BMO’s Low Rate 5-year fixed mortgage at 2.99 per cent that incited the mortgage rate wars earlier in the year
IMF warns that the government may need to tighten rules again – CBC News
The International Monetary Fund (IMF) sent a warning to Ottawa that the state of the housing market presents a significant threat to the national economy, noting that the government may need to step in again if household debt levels continue to increase.
“Thus far, mortgage credit growth has slightly decelerated in response to the measures taken by the authorities, including tighter mortgage insurance standards. If household leverage continues to rise, additional measures may need to be considered.” – IMF
Finance Minister Jim Flaherty has already tightened the mortgage lending rules three times in the same amount of years, including the most recent new mortgage rules which went into effect July 9th, 2012.
Canadian homeowners are considering more responsible home financing options to save big on equity and interest costs. A recent BMO mortgage poll finds that 63% of Canadians married with children prefer a shorter amortization to pay off their mortgage sooner. In particular, 61% of homeowners in Alberta are most likely to choose a shorter amortization compared to 53% in Ontario, 45% in Quebec, and 32% in the prairies. Overall, half of Canadians would consider a shorter amortization.
The head of Mortgage Products at BMO Bank of Montreal, Katie Archdekin, finds the numbers encouraging. She says, “homeowners who choose a shorter amortization period can save money in interest over the life of the mortgage. For instance, transferring from a 30 year to a 25 year amortization can save upwards of $70,000 in interest over the life of the mortgage – which is compelling.”
Deputy Chief Economist and Senior Econmist at BMO Capital Markets, Douglas Porter and Benjamin Reitzes say that in the years ahead, financial stability will be secured by locking into fixed term mortgages and shorter amortization periods rather than riskier variable mortgages and lengthy 30-year amortization periods. Fixed mortgage rates are predicted to trump variable rates because of their stable interest rate and the ability for homeowners to have a fixed monthly payment, allowing them to budget accordingly.
Each week, Ratehub delivers the Notable News. Our compilation of the week’s most relevant and up-to-date news from Canada’s mortgage and housing industry will help you stay informed. This week, Canada’s big banks face a drop in credit ratings by S&P, consumer debt continues to hit banks hard, Genworth, Canada’s second largest mortgage insurance provider, had their second-quarter earnings fall, and condo investors could earn significant returns on their investments.
S&P drops credit ratings of Canada’s big banks from stable to negative – Vancouver Sun
Canada’s rising consumer debt and high housing prices are leaving its banks vulnerable, according to Standard & Poor credit rating agency. Seven of Canada’s big banks including RBC and TD once had excellent credit ratings, but that recently changed when S&P dropped them from “stable” to “negative.” The banks face risks associated with the pullback in consumer borrowing and a downturn in the housing market which are factors reminiscent of the U.S.-style housing crash.
However, Routledge says, “we are not going to have a massive wave of credit losses impacting the balance sheets of Canadian banks, because of the prevalence of mortgage insurance.” Canadian banks are backed by the federal government through mortgage insurance issued by the CMHC, unlike the U.S. banks before 2009 financial meltdown. Still, Lewandowski said the negative outlook imposed by S&P adds to the growing concern about Canada’s housing market and record consumer debt.
Each week, Ratehub brings you the Notable News – a compilation of the latest news and most interesting headlines from the mortgage and housing industry. This week, economists and industry insiders provide their two cents on the recent mortgage rule changes. Some believe the new rules are a positive change, others think it will be harder for first-time homebuyers to get into the market, while some believe the changes came too late.
Inflation easing means low interest rates are here to stay – The Globe and Mail
A combination of slowing inflation and Ottawa’s decision to tighten mortgage rules have given the Bank of Canada more freedom to keep interest rates low for a longer period of time, should they choose to. According to Stats Canada, Canada’s annual inflation rate eased in May to 1.2%, down from 2.0% in April – the slowest in two years. The data came a day after Jim Flaherty announced the tightening of the mortgage rules. In response to Friday’s inflation report, deputy chief economist at BMO, Douglas Porter says, “this simply drives home the point that there is now precisely zero urgency to tighten,” and that “any chance of 2012 Canadian rate hikes seemed to fly out of the window.”
Moody’s warns mortgage tightening efforts came too late – The Globe and Mail
Moody’s Investors Service warns the federal government’s efforts to tighten the rules on government-backed mortgages may have come too late. They cite high levels of Canadian household debt leave consumers with little flexibility to adapt to shifting markets, especially those who rely too heavily on low interest rates to support high debt loads. Moody’s analysts, William Burn and Andriy Stepanyants, say, “previous rule changes had some effect in countering the stimulus provided by historically low interest rates but failed to stop Canadian household leverage from increasing.”
Each week, Ratehub compiles and summarizes the latest news from the mortgage and housing industry to keep you up-to-date with the most interesting and relevant headlines. This week, Flaherty announced major changes to the mortgage rules in an effort to cool the housing market. Toronto is also taking steps to fix the glass that has been falling from condos, and Moody’s downgrades a major Canadian bank.
Mortgage clampdown will save Canadians thousands: Flaherty – Globe and Mail
A major announcement from Ottawa as four changes have been made to the Canadian mortgages rules, only some of which apply to insured mortgages. Jim Flaherty says the changes will save Canadians thousands of dollars. The changes are outlined below:
- Maximum amortization period is now 25 years for high-ratio mortgages (i.e. downpayments of less than 20%).
- No CMHC insurance on homes priced over $1M. Homes over this amount will require a 20% down payment.
- Maximum amount of home equity that can be borrowed is now down to 80% from 85%.
- Maximum gross debt score and total debt score are now fixed at 39% and 44% respectively.
The new mortgage rules will take effect on July 9, 2012.
Moody’s downgrades ING Bank of Canada – Financial Post
After ING’s Dutch corporate parent ING Bank N.V. was downgraded two notches to a C- in financial strength, ING Bank of Canada was also downgraded from an A2 to a Baa1 by Moody’ Investors Service. The agency raised concerns about ING’s narrow business model in Canada and says it believes “ING Bank of Canada manages these exposures carefully, but in a stress environment they could still result in material losses.”
Ottawa is announcing the fourth change to lending rules in as many years. Beginning July 9th, we’ll see the following changes to the mortgage rules:
- Maximum amortization period on high-ratio mortgages – those with a down payment of less than 20% – is now 25 years. For down payments of 20% or more, the maximum amortization period will be at the discretion of the lender and it is likely home buyers will still have access to 30 and 35 year amortization periods.
- No CMHC insurance on home prices over $1M. This means if you’re purchasing a home for $1,000,001, you have to be ready to put down 20% or $200,000. Looking at a home that is $1,000,000 however, you can get away with a down payment as low as $50,000.
- Maximum loan-to-value ratio on a refinance will be reduced from 85% to 80%. For loan to value ratios over 80% historically, additional CMHC fees were incurred so many refinancers never went past 80% to begin with.
- Maximum gross debt score and total debt score to 39% and 44% respectively.
***If an individual has mortgage lender approval before July 9, 2012, the latest the property can close is December 31st of this year.