Notable News of the Week: September 21, 2012
The Notable News is a weekly recap of mortgage and housing news. This past week we discovered that a housing co-op in Manitoba is stuck between a rock and a hard place, while Canada’s third-largest bank has no fear of a housing market crash.
Winnipeg Co-op stuck with a mortgage interest rate of 13.25 per cent – Winnipeg Free Press
Earlier this week, Village Canadien Housing Co-op in St. Vital, Manitoba called out the Canadian government for not working to amend their mortgage policy with the CMHC. The Co-op signed a 50-year mortgage in 1983 with a mortgage interest rate of 13.25 per cent. Linda Ferguson, president of the housing co-op said they are trying to refinance their mortgage to take advantage of equity and lower mortgage rates and invest $2.5 million for renovations. At the time, a 50-year mortgage rate at 13.25 per cent was considered a deal compared to market rates. In comparison, the average posted rate for a 5-year fixed mortgage rate in 1983 was 13.23 per cent.1
Unfortunately, the terms of their closed mortgage do not allow them to break their contract. The CMHC says they will only allow the co-op to pay out its mortgage early is by paying a mortgage penalty of $5.5 million – an amount equal to the total interest they would have paid when the mortgage reached maturity in 2028. Village Canadien is not happy with that option because the penalty is much larger than their current remaining mortgage balance of $4.5 million.
Federal Housing Minister Diane Finley responded by stating that the CMHC’s social-housing lending program operates on a break-even basis and there is nothing more she can do. The housing minister went on to say, “When [Village Canadien’s] mortgage comes up for renewal, they have every right to pursue financing from other sources.”
Village Canadien believes transferring their mortgage debt from the government-backed CMHC onto the private sector would help the economy, as well as create jobs for their much needed renovations. For now, it looks like the co-op will have to wait 16 years before it can take action on its renovation plans.
Calgary leads nation in sales growth – Calgary Herald
Sales and price increases in Calgary’s resale market has stampeded its way to the highest annual rate of growth among the nation’s biggest cities. According to the Canadian Real Estate Association, sales are up an astonishing 15 per cent year-over-year in August. The average MLS sale price in ‘Cowtown’ is now at $400,277. Low mortgage rates in Alberta have partly contributed to the buying frenzy; however, the chief economist at CREA believes that the market in Alberta will still cool as slower first-time home buyer activity affects the rest of the market.
A housing correction will not affect the economy and big banks – The Toronto Sun
Rick Waugh, Scotiabank President and CEO, says that a slowdown in Canada’s housing market was largely expected and a market correction will not have a significant impact on our economy or the big Canadian banks. Mr. Waugh went on to say that Canada will experience “a soft landing at worst.” The bank CEO expects sales volume and home prices to decline 10 per cent each.
Notes:
1 Data acquired from Ratehub.ca’s mortgage rate history page