Economist sees increased chance of interest rate cut this year

Canada could cut interest rates again this year if exports continue to disappoint according to investment bank Nomura.

In a client note, economist Charles St-Arnaud wrote that the BoC’s growth forecast needs better results from non-energy exports and without that growth the current 40 per cent expectation for an interest rate cut could rise.

While a rate cut may benefit businesses that are under pressure from cheaper labour and materials costs in Asia and Mexico, it would also raise a familiar concern: “The BoC should be worried if it reignites household borrowing and the housing market, while business investment is currently not very sensitive to rate cuts,” St-Arnaud wrote.








Source:  http://www.canadianrealestatemagazine.ca/market-update/economist-sees-increased-chance-of-interest-rate-cut-this-year-212038.aspx

Canadian banks ordered to undergo mortgage stress tests

Canada’s top banking regulator has again addressed the country’s overheating housing market, demanding lenders show that their capital levels could withstand severe drops in the price of houses in Vancouver and Toronto.

The Office of the Superintendent of Financial Institutions (OSFI) has imposed more stringent criteria for stress tests, the hypothetical scenarios used to measure the impact of downturns in areas that affect banks, such as housing, employment and economic activity. The lenders will now be required to evaluate how they would be affected by a decline of at least 50 per cent in house values for Greater Vancouver and at least 40 per cent for the Greater Toronto Area.

The evaluations will test all other areas of the country will have to assume a minimum downturn of 30 per cent, in line with OSFI’s previous requirements, which did not single out specific markets.

The changes apply to smaller federally regulated lenders, such as Canadian Western Bank and Equitable Bank. It is unknown if the Big Six banks are facing similar revisions to their own stress tests, given that OSFI keeps confidential the criteria used in the stress tests for these institutions.

None of the Big Six lenders replied to a request for comment.

This is the first time OSFI has updated its real estate testing requirements for lenders since it implemented them during the 2008 financial crisis.

While stress tests are by no means forecasts for where house prices are likely to go, the more stringent testing adds to growing concern among regulators and observers that the risks surrounding Canada’s housing market have grown substantially as prices have surged.

In June, national house prices rose 10 per cent year over year, according to the Teranet-National Bank house price index. However, the increases were significantly higher in Vancouver and Toronto, as consumers reacted to low borrowing rates and a shortage of homes for sale.

In response, regulators are trying to apply the brakes to a housing market that has risen even though the economy is weak and incomes are stagnant.

Earlier this month, OSFI said – in a rare open letter that acknowledged the watchdog’s concerns about lending standards – that banks and other mortgage providers must increase their scrutiny of borrowers’ incomes, debt levels and credit scores.

On Monday, the B.C. government announced a plan to impose an extra 15-per-cent tax on non-resident foreigners who buy homes in the Vancouver area – such purchases accounted for about 10 per cent of the value of transactions in Metro Vancouver over the past month – a move that was applauded by Bank of Montreal’s chief economist and Ontario’s Finance Minister.

Last month, the Bank of Canada warned of “increased riskiness” in the mortgage industry as a run-up in household debt posed potential consequences for lenders.

Banks themselves have on occasion expressed their own concerns about Canada’s housing market.

In particular, Bank of Nova Scotia chief executive officer Brian Porter said in June that the federal government should raise minimum down payments, increase the qualifying rate for five-year fixed mortgages and impose a tax on foreign buyers.

While OSFI’s announcement of changes to stress testing was not addressed to the Big Six lenders – which are known as domestic systemically important banks (D-SIBs) and are tested by OSFI and the Bank of Canada – it is possible that these larger banks could face their own shifting requirements.

“As the macro stress tests for the D-SIBs are based on detailed and specific instructions for each institution, the instructions are not shared,” an OSFI spokesperson said in a statement.

 

 

 

Source:http://www.theglobeandmail.com/real-estate/the-market/canadian-banks-ordered-to-undergo-mortgage-stress-tests/article31125822/

Options for millennials seeking their own detached homes

Canadian members of Generation Y still have multiple options for their desired homes despite benchmark prices for detached properties (as of July) sitting at around $1.2 million in Toronto and at nearly $1.6 million in Vancouver, analysts stated.
 
“It’s obviously stage of life, as needs change, your requirement for a home changes,” Ontario Real Estate Association (OREA) director of marketing communications Fahed Malik told theFinancial Post. “There is a need for a larger home and a detached home can give you that practicality.”
 
A recent survey by the OREA found that approximately 51 per cent of millennials are intending to buy a detached property within the next two years. Meanwhile, 28 per cent said that they would go for condo units, and 18 per cent expressed a preference for semi-detached homes.
 
However, observers said that while getting a detached home is still possible, doing so would mean giving up the advantages afforded by other home types—in particular, proximity to work for those employed deeper within the city.
 
“Living near the city’s downtown means downsizing your expectations,” the Financial Post’s Garry Marr wrote in his analysis.
 
“The desire to have the dog, the garage and 2.4 kids is strong no matter what generation you are talking about,” Re/Max Western Canada regional executive Elton Ash said. “I just did a road trip in Manitoba and visited a community 35 kilometres north of Winnipeg and the lot cost was $45,000. But it’s the same result as you move out of city cores, prices to get cheaper and that’s why bedroom communities are getting more popular.”
 
In Vancouver, an attached home like a townhouse unit or a row house is currently going for an average of $669,000, which might represent a more realistic option for millennials who do not want to contend with long distances to and from work.
 
Another especially important point, according to Environics Analytics demographer Doug Norris, is that most of the supply in the detached market is cornered by baby boomers.





Source: http://www.canadianrealestatemagazine.ca/news/options-for-millennials-seeking-their-own-detached-homes-211741.aspx

Students want to own a home within 5 years

Almost half of Canada’s post-secondary school students want to move out of their parents’ home within a year of graduation and buy their own home within 5 years.

A poll by RBC assessed student finances and revealed that students are eager to achieve a number of key life moments shortly after finishing their studies.

However, first-year students have a more optimistic outlook than those approaching graduation. For example, 64 per cent of 1^st years expect to earn their first $100k within a year of graduation compared to 55 per cent of 4^th years.

Student debt is in focus for 78 per cent of students who intend to have it paid down within 5 years of leaving school.





Source: http://www.canadianrealestatemagazine.ca/market-update/students-want-to-own-a-home-within-5-years-211593.aspx