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The mortgage ‘stress test’ has started harming Canadians more than it helps

Opinion: It's effectively closing the door in the faces of first-time homebuyers

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When a mortgage stress test was first unveiled in late 2017 by the Office of the Superintendent of Financial Institutions (OSFI), it was to support the goals of keeping future Canadian homeowners’ financial “heads above water” and preventing “loose” lending. After more than a year in play, it is now apparent that the stress test is causing more harm than good, effectively closing a door in the faces of first-time homebuyers. The time has come for policy-makers to consider how to incentivize homebuyers in Canada, not penalize them.

Let’s dip into some recent history for context. We only have to go back to 2016 and 2017, when prognosticators were predicting a debilitating housing bubble in Canada. Frankly, we were all a bit disoriented by the month-over-month and year-over-year residential price records — particularly in our two largest markets, Toronto and Vancouver. The government of B.C. then introduced a foreign-buyers tax, followed by the government of Ontario. The new tax had a welcomed calming effect.

Ten per cent of Canadians no longer qualify for a mortgage with banks

Then, as the Canadian economy hit a hot streak, measured by exceptional employment data and GDP growth, the Bank of Canada (BoC) began raising interest rates. Given that Canadian households were already at record debt levels, the end of cheap money potentially spelled big problems when it came to mortgage affordability. As a result, the Canadian government prudently and appropriately introduced the OSFI mortgage stress test in late 2017, followed by an augmentation in 2018 to include all mortgages.

This regulation served its purpose. New homebuyers had to prove they had legitimate means to afford a down payment and mortgage in a rising interest-rate environment, which every pundit anticipated in 2019.

Yet, lo and behold, the economy has started to soften, with GDP growth in 2019 pegged to grow by 2.2 per cent followed by a 1.9-per-cent increase in 2020, to say nothing about the volatility created by tariffs and trade woes. As such, the BoC is hitting pause on imminent rate increases.

The stress test has cut first-time homebuyers out of many markets in Canada and caused a ripple effect through every tier of homebuyer

In other words, the context in which the stress test was introduced is no longer relevant. Interest rates aren’t anticipated to rise as originally anticipated, and homebuyers desperate to enter the market are seeking out unsecured lenders.

Let’s look at the situation as it stands now: Since the stress test for all mortgages took effect, inventory levels have either tightened or expanded depending on the segment of the market. Ten per cent of Canadians no longer qualify for a mortgage with banks. The stress test has cut first-time homebuyers out of many markets in Canada and caused a ripple effect through every tier of homebuyer. It has affected move-up buyers needing larger homes to accommodate growing families. It has created a frenzy in the rental market, since those who no longer qualify for a mortgage are opting to rent.

The bottom line is that the Canadian government needs to find ways to support, even incentivize, homebuyers in Canada (especially first-timers who are facing challenges entering the market) rather than penalize them. While the stress test served its purpose early on, requiring homebuyers to qualify at a “stress rate” that’s two-per-cent higher than the actual rate on a 25-year amortization period is unproductive now that the market has normalized to more reasonable levels.

Being in the industry myself, perhaps my stance sounds self-serving. But the fact is that real estate continues to be one of the safest and most reliable financial investments for Canadians and first-time buyers deserve an opportunity to enter the market. It’s our duty as professionals to educate potential buyers on the mortgage-qualification rules and work with them to help consumers determine the best options for them. We must address the uncertainty head on, rather than encouraging a “wait and see” approach.

Christopher Alexander is executive vice-president and regional director of RE/MAX INTEGRA, Ontario-Atlantic Canada.

 

 

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INTEREST RATES ON THE RISE?

There has been speculation that Canadian interest rates are not done rising yet – and some say they will keep rising until 2020.  This means borrowers will qualify for less when they’re looking to purchase, and current home owners can expect mortgage payments to climb at the time of their mortgage renewal, or if they are in a variable rate mortgage.
 
Why are rates increasing?
The strengthening Canadian economy strengthening, especially with the recent finalization of the North American Free Trade Agreement (NAFTA), is one of the reasons for higher interest rates for consumers.  Some economists hypothesize that the interest rate will rise not only during the October Bank of Canada (BoC) rate announcement, but it will also increase steadily over the course of 2019.
 
When are BoC announcements?
There are 8 BoC rate announcements a year where the Canadian Prime Rate can be increased or decreased based of the outlook for the Canadian economy.  The prime rate is the interest rate that commercial banks charge their most creditworthy clients, and it is determined by the federal funds overnight rate (ie. the interest rate that large banks use to borrow and lend against each other).  The next scheduled BoC rate announcement is on October 24, 2018 with strong expectations of an increase.
 
When was the last time the prime rate was higher than 5%?
Our current Prime Rate in Canada is 3.7%, with expectations from some economists that the Prime rate could be upwards of 6% by 2020.  This is a large increase for most Canadians – especially as we have not seen the Prime Rate above 5% since 2008!
 
What will this mean for home owners?
To put it simply, anyone with a fixed rate mortgage will not be immediately affected as their payment will stay the same until the end of their mortgage term, when they come up for renewal.  Variable rate clients will feel the brunt of the increases, as when the BoC Prime Rate increases so do their mortgage payments.  With this in mind, it brings the question: is a fixed or variable rate the better choice for the next couple of years?

LOWEST RATES* IN CANADA

TERM OUR RATE BANK RATE
3 Year Fixed 3.44% 3.49%
5 Year Variable 2.60% 3.45%
5 Year Fixed 3.54% 3.79%

Updated: 25 Oct 2018

Rates may vary between geographic regions and the posted rates on this website may not be available in your area. Please contact me or your local CENTUM office for more details.


 
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These GTA Neighbourhoods Still Have Affordable Detached Homes


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Condos may be king as an affordable housing option for many in the Greater Toronto Area, but let's face it — for some, a detached home is the only choice. Some are lucky enough to climb the property ladder from a semi or townhouse; others are happy to move further out of the city in search of that white picket fence and backyard.

And despite what recent reports would have you believe, there are still some affordable neighbourhoods for single-family homes in the 416 and 905 areas.

"Affordable" being a relative word, of course, as compared to average prices. As of Sept. 30, 2018, the average price of a detached home in the GTA is $1.01 million — $1.34 million in the 416, and $905,722 in the 905, according to the Toronto Real Estate Board (TREB).

Indeed, there's been no shortage of stories recently about the challenges of the GTA real estate — namely supply, pricing and affordability — on both the resale and new homes sides of the market.

And as the Oct. 22 Ontario municipal elections near, housing industry officials are drawing more and more attention to these issues.

"While higher borrowing costs and tougher mortgage qualification rules have kept sales levels off the record pace set in 2016, many households remain positive about home ownership as a quality long-term investment," Toronto Real Estate Board President Garry Bhaura said Oct. 3 in releasing TREB's Market Watch Report for September. "As the GTA population continues to grow, the real challenge in the housing market will be supply rather than demand. The Toronto Real Estate Board is especially concerned with issues affecting housing supply as we move towards municipal elections across the region."

So, let's take a look at where some of these relative detached "bargains" are.

First, let's look at some of the hottest areas of the GTA in terms of price growth.

Top five GTA neighbourhoods for price appreciation


Detached homes in 2018
NEIGHBOURHOOD Q1 Q2 % Change
Palmerston-Little Italy,
Trinity-Bellwoods $1.60M $1.87M 17
Brock $498,966 $573,951 15
The Beaches $1.32M $1.50M 13
Edenbridge, Humber Valley, Islington $1.43M $1.57M 10
Georgina $538,817 $590,255 10
Source: ReMax Integra Ontario-Atlantic Region, TREB

Double-digit price growth in just one quarter is fantastic if you currently own in any of these areas. But if you were hoping to buy there, your purchase price just got a lot more expensive — in a matter of months.

Now, let's take a look at some of the comparatively more affordable areas for detached homes in the GTA.

Most affordable neighbourhoods in the 416

Detached homes, Q2 2018
NEIGHBOURHOOD Average Price
West Humber, Claireville, Rexdale-Kipling,
and Thistletown-Beaumond Heights $732,854
Bendale, Woburn and Morningside $742,670
Malvern, Rouge $752,292
Rockcliffe-Smythe, Keelesdale-Eglinton West, Weston $783,141
Downsview-Roding, Glenfield-Jane Heights, Black Creek $859,215
Source: ReMax Integra Ontario-Atlantic Region, TREB

Most affordable neighbourhoods in the 905


Detached homes, Q2 2018
NEIGHBOURHOOD Average Price
Essa $547,970
Oshawa $556,309
Brock $573,951
Clarington $585,562
Georgina $590,255
Source: ReMax Integra Ontario-Atlantic Region, TREB

As you can see, some of the still-affordable areas for detached homes in the GTA — such as Brock (Durham Region) and Georgina — are also performing well in terms of price growth.

In short, Durham Region, Simcoe County and Dufferin County are hot.

In particular, Brock and Essa (Simcoe County), Burlington, Halton Hills, Brampton, Orangeville and Scugog are all showing promise in detached home price growth, according to ReMax Integra, Ontario-Atlantic Canada Region.

What makes these areas good potential buying opportunities for detached homes? First, the obvious — pricing. Slightly more than $550,000 in Oshawa, versus $1.5 million in the Beaches, or even the $905,722 average detached home price in the 905? Do the math.

And look at Brock, enjoying 15-per-cent price growth in just one quarter — yet the average price of a detached home is still a palatable $573,951.

Obviously, living in an area such as Durham Region and commuting to Toronto adds travel costs and time. But as these areas develop in terms of economic, job and wage growth and infrastructure expansion, it becomes possible to live and work there.

Oshawa, for example, is humming. Though dipping slightly from 3.2-per-cent GDP growth in the last two years, the city's economy is forecast to advance a still-healthy 2.6 per cent this year, according to the Conference Board of Canada. It's no coincidence, then, that Oshawa is also a hot bed for new home development at the moment — further driving price growth.

With mortgage industry experts expecting at least one more interest rate hike this year, buyers intent on snapping up detached home "bargains" in these areas… you're on the clock.

This story was originally published on MyHomePage.ca

Wayne Karl is Senior Digital Editor at Homes Publishing

  


 

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In some Toronto neighbourhoods, condo values are up 50% in 1 year, report says

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Despite reports that housing prices have fallen overall in Canada over the past year, in some Toronto neighbourhoods, the value of a one bedroom condo has gone way up. 
 According to the latest data from the Toronto Real Estate Board, multi-family housing, both of the low- and high-rise variety, experienced a price appreciation of 8.3 per cent in the 416 region.

Penelope Graham, managing editor at Zoocasa, an online real estate brokerage, said the company analyzed the data and price appreciation for condos differs dramatically from neighbourhood to neighbourhood.

"Real estate conditions are really local, which means on a neighbourhood scale, affordability can differ widely across the city," Graham said.

According to the data, the greatest appreciation for a one-bedroom condo was in L'Amoreux, a neighbourhood north of Sheppard Avenue and east of the Don Valley Parkway, and in Corinthian, a neighbourhood in the Victoria Park Avenue and Finch Avenue East area. 

In 2017, the average price for one-bedroom condos in these neighbourhoods was $187,000. In 2018 that number is $268,400.

The second-highest value increase was noted in Forest Hill and midtown Toronto at 45 per cent. In 2017, the average price of a one-bedroom condo in those neighbourhoods was $342,923 and in 2018 it's risen to $496,222.

Meanwhile, in neighbourhoods like Greektown, Riverdale and Leaside, the numbers show condo values have depreciated.

"In some of these areas, there wasn't a lot of condo stock to begin with," Graham said.

You can read the full report, which also includes analysis of two-bedroom condos, here.

Graham said Zoocasa looked at data and calculated the year-to-date price across 95 Toronto neighbourhoods, and compared them to the year-to-date price this time in 2017 to see how much they went up in value.

'Double digit gains'

Toronto real estate broker Pierre Carapetian says these numbers don't surprise him.

"In downtown Toronto, the condo market has been flourishing for quite some time, seeing double digit gains,"  Carapetian said.

"People are making a lot of money. Investors are buying rapidly."

Carapetian says he provides his investors with bi annual updates on the value of their properties and every six months they've seen growth.

He says this is partly because Toronto is growing so rapidly, and for many a condo is the only option.

"That's what available for the majority of people so that's why you're seeing an increase in prices because there's not enough of them to fill a demand."

The broker stresses the importance of checking the statistics in your specific neighbourhood when you're buying or selling, not listening to overall city or nationwide statistics.

"Be very careful when you hear a statistic, and what it's actually telling you, and if it's relevant to what you're looking for."

CBC News · Posted: Sep 11, 2018 9:36 AM ET  

 

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These 4 Canadian cities could see a jump in housing activity

Photo: James Bombales

Whenever employment is particularly strong in a Canadian city, a boost in housing activity is sure to follow.

And, according to a new report from BMO, Ottawa, Quebec City, Hamilton and Edmonton’s economies are having a great year.

“Employment prospects are typically the biggest factor driving migration trends, and we often simplify this by saying there are two key reasons to move: To find a job, if you don’t have one; or to take a better-paying job, if you do,” writes BMO senior economist Robert Kavcic, in the report.

Kavcic ranked 21 Canadian cities by their “labour market attractiveness,” with Ottawa coming out on top.

The city’s housing market has been performing well for months, and Kavcic writes that its rosy employment market has a good deal to do with its rising home prices.

“We’ve been very bullish on Ottawa for a while now (the city, not the hockey team), and it shows,” writes Kavcic. “The city boasts the highest median employment income per family, and has seen its jobless rate sink nearly two percentage points below the 21-city average, while home prices remain decidedly affordable despite accelerating recently.”

According to Ottawa-based Royal LePage broker Adam Mills, there’s demand from within and outside the city.

“We have strong local demand, and people from other pockets of Canada who are realizing that for a major city our property is undervalued,” he tells Livabl.

When it comes to Hamilton, number three on the ranking, Kavcic writes that it’s become a major home buying destination for those priced out of the Toronto market.

“Given that Toronto has been held back by significant pressure on housing affordability, cities like Hamilton…within commuting distance of Toronto jobs, have served as a release valve,” he writes.

Hamilton-based realtor Mike Heddle agrees, saying that the city is experiencing what he calls a “Manhattan effect.”

“When you look at an area like the Greater Golden Horseshoe, you’ve got a limited amount of space, because you’re boxed in by the lake and the Greenbelt. At the same time, roughly three-quarters of the country’s GDP comes from the area,” he says. “It’s no secret why Hamilton’s real estate market is doing well given the circumstances.”

But the second and fourth cities on the list buck the Ontario trend. Quebec City, number two, has seen a big surge in population in the past five years. “To boot, it boasts some of the most affordable housing in Canada,” writes Kavcic.

And in fourth place, Edmonton is seeing its economy recover from the oil shock.

“Alberta still has a very favourable tax environment, even though a number of taxes (mainly for higher-income earners and corporations) have risen in recent years,” writes Kavcic.

Livabl

 

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Why did the price of a new GTA condo jump 25 per cent last month? Experts weigh in

Photo: James Bombales

While home prices continued to underperform across most GTA property types last month, there was one notable exception — the benchmark price of a new condo jumped a whopping 25.4 per cent year-over-year to $758,370 in May.

“Besides strong demand from new home buyers looking for more affordable options, the continuing increase in condo…prices can be partly accounted to an increase in average unit size to 892 square feet from 814 square feet a year ago,” reads the data release from the Building Industry and Land Development Development Association (BILD). “The average price per square foot [increased] to $850 from $743 last year.”

But larger units aren’t the only reason for the price bump, according to Toronto-based realtor Ralph Fox.

“There’s been very low inventory when it comes to new construction condos for awhile now,” he tells BuzzBuzzNews. “When units come on the market, they go for very high prices.”

Fox does agree with BILD’s statement that buyers priced out of the low-rise market are likely looking to condos instead, a surge of demand which could account for the uptick in prices. But he also notes that the new construction condo market is driven largely by investors, who have other considerations in mind.

“Investors are thinking long term when it comes to the new construction supply pipeline,” he says. “With the end of the OMB, there’s a lot of speculation that there will be fewer projects in the pipeline in a few years. Developers will likely take a “wait-and-see” approach in the future, and if supply lowers considerably, that could drive new condo prices up further.”

Still, he says it’s hard to predict whether the market will continue to see such large year-over-year price gains, because it’s largely dependant on the number of condo launches in any given month.Zoocasa managing editor Penelope Graham agrees, saying that, while the new condo market was certainly hot last month, there’s no guarantee it will continue to be moving into the summer.

“It’s hard to say with the preconstruction market, because it tends to be really seasonal,” she tells BuzzBuzzNews. “Two or three months down the road you could see a lot of projects come to fruition, which could change the price picture.”

But both she and Fox agree that prices are likely to stay relatively high for the foreseeable future.

“I think the new condo market is going to mirror the resale condo market, in that prices are going to continue to rise,” says Fox. “In terms 
of affordability, there’s a lot of demand for condos on the market right now.”


 


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Mortgage stress test is going to cause more than a ‘dip’ in the Canadian housing market: RBC

Canadian home sales have been falling on a year-over-year basis ever since a new mortgage stress test was implemented in January. And while many industry watchers had predicted the market would start to recover in spring, one economist says things may stay cool for awhile longer.

“It increasingly looks like the new stress test is causing more than just a temporary dip in housing market activity in the greater Toronto and Vancouver areas,” writes
RBC senior economist Robert Hogue, in a recent note.

Last month, sales were down 22.2 per cent and 35.1 year-over-year in Toronto and Vancouver, respectively. But there’s a reason that May’s year-over-year numbers are looking so dire, and it has everything to do with regulations that came into effect this time last year.

“May 2017 was when activity really started to nosedive in the Toronto area following the introduction of Ontario’s Fair Housing Plan in late-April,” notes Hogue “In Vancouver, market-cooling measures announced in the 2018 provincial budget in February also likely weighed on May resales.”

And while the market is taking longer to correct than originally predicted, Hogue writes that he isn’t worried about the current state of affairs.

“We aren’t overly concerned by what is becoming a more extensive market correction in two of Canada’s largest markets,” he writes. “At this stage, we still believe that neither is in a death spiral. Despite sharply lower levels of activity, demand-supply conditions (as depicted by the sales-to-new listings ratio) remain balanced.”

Benchmark prices in both cities have been slowly climbing on a month-over-month basis, which Hogue considers a sign that the markets are still relatively healthy.

“If anything the year-over-year decline should be seen as a positive development considering how high prices had climbed previously,” he writes. “The road ahead is likely to be bumpy for both the Toronto and Vancouver market. Still, we expect that as long as the economy continues to grow they will manage to stay on track.”

    
Photo: James Bombales






 

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Here Are The Least — And Most — Expensive Ontario Cities For Homebuyers

Affordable housing is a growing concern — despite the cooler market of late.
While an expensive Toronto housing market is no surprise, recent news citing Brantford as the best city to buy real estate in Canada was somewhat surprising when it made national headlines.
What other market surprises exist in Ontario? Where can you find the most and least affordable homes? Zoocasa put together a thorough analysis to find out.
After compiling the home-price-to-income ratios in each of the province’s major markets, Zoocasa used median household incomes from Statistics Canada, and average April 2018 home prices provided by the Canadian Real Estate Association.
“This ratio helps determine the affordability of real estate within a region, in comparison to the median gross income earned there – it represents the number of years it would take to pay off the average home in full, if a household dedicated 100 per cent of its income to doing so,” explains Zoocasa.
“According to financial experts, the ideal affordability ratio for shelter is three.”
Its data reveals that for households with two or more incomes, there are only two housing markets in Ontario that fit these criteria — while none are within the realm of affordability for single-income earners.

The 5 Most Affordable Ontario Cities
– Thunder Bay – Single Income Ratio: 6, Dual-Income Ratio: 2, Average Home Price: $217,745 – Sudbury – Single Income Ratio: 9, Dual-Income Ratio: 3, Average Home Price: $268,696 – Windsor – Single Income Ratio: 9, Dual-Income Ratio: 4, Average Home Price: $303,183 – Ottawa-Gatineau – Single Income Ratio: 9, Dual-Income Ratio: 4, Average Home Price: $418,232 – Kingston – Single Income Ratio: 10, Dual-Income Ratio: 4, Average Home Price: $366,582
The 5 Least Affordable Ontario Cities
– Greater Toronto – Single Income Ratio: 20, Dual-Income Ratio: 9, Average Home Price: $804,584 – Hamilton – Single Income Ratio: 16, Dual-Income Ratio: 6, Average Home Price: $569,490 – Oakville – Single Income Ratio: 15, Dual-Income Ratio: 5, Average Home Price: $719,000 – Durham – Single Income Ratio: 14, Dual-Income Ratio: 6, Average Home Price: $604,51 – Peterborough – Single Income Ratio: 14, Dual-Income Ratio: 6, Average Home Price: $448,875
by Toronto Storeys

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Canadian Real Estate Prices Hit An All-Time High, But Gains Are Rapidly Decelerating

MAY 1, 2018   *Source: Statistics Canada. Better Dwelling.*
Canadian real estate prices have spiked to a new high. Canadian Real Estate Association (CREA) numbers show prices across the country ripped higher in March. Despite the good news for sellers, gains are tapering at an alarming rate. The Price Of A Typical Home In Canada Has Never Been Higher
The price of an aggregate benchmark (a.k.a. typical) home, made a huge single month leap in March. The benchmark reached $652,400 across Canada, a 1.14% increase from the month before. That represents a 4.6% increase compared to the same month last year. The benchmark is now printing an all-time high, beating the previous record set last July. Remember, this is an aggregate benchmark, which includes condos as well. Not just detached homes.
Canadian Real Estate Price Gains Are Rapidly Decelerating
The increase has a few caveats worth noting, one of the most interesting being price deceleration. The annual increase of 4.6% is a huge gain, but it’s the lowest increase since December 2013. People should also note how quickly this trend is tapering. The rate of growth has declined 74.78% over the past 11 months. The gain is very large, but the pace at which they’re declining should be read as a sign of caution.
But… Toronto Real Estate Prices Are Falling
We know, Toronto’s composite prices are falling, how can the rest of the country be increasing? The aggregate benchmark price is a weighted index of cities by regions, and Toronto sales are declining very quickly. Toronto sales represented 21.3% of sales in the country last year, and only 16.5% of sales this year. Smaller regions are seeing sales rise, and prices with them. This brings up the floor of prices across the country, as lower priced homes in far off regions disappear. Too wordy? Lower priced markets (like Edmonton) climbed last month, meaning the cheapest homes in the average are rising.

RegionMarch 2018 Toronto 7,228 Montreal 5,656 Vancouver 2,551 Calgary 1,733 Ottawa 1,674 Fraser Valley 1,576 Edmonton 1,535 Hamilton-Burlington 1,009 Winnipeg 923 Quebec City 871 London and St Thomas 823 Victoria 656 Niagara Region 541 Kitchener-Waterloo 528 Other 16,635 RegionMarch 2017 Toronto 12,077 Montreal 5,318 Vancouver 3,632 Calgary 2,384 Ottawa 1,519 Fraser Valley 2,113 Edmonton 1,796 Hamilton-Burlington 1,660 Winnipeg 1,068 Quebec City 888 London and St Thomas 1,238 Victoria 873 Niagara Region 822 Kitchener-Waterloo 790 Other 20,447

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