OSFI stress test has cut millennial purchasing power by $40K

The home-purchasing power of ‘peak millennials’ aged 25-31 has diminished by around $40,103 (16.5%) since the introduction of the OSFI stress test at the start of 2018.

A report from Royal Le Page calculates that nationwide, a peak millennial with a median salary of $38,148 has a maximum homebuying budget of $203,246. This includes a 20% down payment and the impact of the stress test.

That means that most peak millennials are well short of the $605,512 aggregate Canadian home value, meaning waiting to become a homeowner or be creative with their home financings solutions, such as borrowing from family or pooling resources.

"We have seen a rare pause this year in the relentless rise in the cost of housing," said Phil Soper, president and chief executive officer, Royal LePage. "For peak millennials, the group which makes up the bulk of our first-time homebuyers, the path to property ownership has been a challenging one. In our largest cities, it is difficult for young people to purchase a home on a single household income. Some will purchase homes with family or friends, and some are following the age-old practice of saving money and waiting until they can effectively double their maximum budget with a life partner."

Couples have a typical maximum budget of $406,479 without help from parents, but prices in some areas mean that compromises on space are required for them to afford a home in the $325,000 to $425,000 price range.

In Greater Vancouver for example, prospective peak millennial purchasers can afford the least amount of living space with an average of 788 sq. ft. with an average of 1.5 bedrooms and 1.2 bathrooms.

Halifax delivered the biggest bang for a peak millennial's buck, offering them an average of 3.1 bedrooms and 3.0 bathrooms. In fact, of the seven cities studied across Canada, the region offered the most living space overall for prospective peak millennial purchasers, with homes in this price range averaging 1,736 sq. ft.

"There are striking differences in the options available to peak millennial purchasers across Canada," continued Soper. "While $425,000 will largely net an entry-level condo in Greater Vancouver and the Greater Toronto Area, on the east coast, this budget unlocks most of the market, offering prospective millennial purchasers large, detached homes with all of the bells and whistles."

Source: https://www.canadianrealestatemagazine.ca/market-update/osfi-stress-test-has-cut-millennial-purchasing-power-by-40k-241758.aspx

Mortgage rules contributed to "lacklustre" start to 2018 says Poloz

The tightened mortgage underwriting rules which came into effect at the start of the year have contributed to a slower start for the Canadian economy.

Bank of Canada governor Stephen Poloz told the House of Commons Standing Committee on Finance that two key issues led to slower-than-expected growth in the first quarter of 2018.

Firstly, the changes to the B20 mortgage rules and other policy measures which saw some homebuying transactions pulled forward into the last quarter of 2017. The slowdown this caused should “naturally reverse” Mr Poloz said.

Weaker experts were also an issue but again the governor expects this to reverse in due course.

The BoC is forecasting growth of 2% for 2018 and an above-potential rise in the years to come, while inflation is expected to remain elevated this year before easing to 2% in 2019.

On wages, Mr Poloz said that there are encouraging signs of growth over the past 18 months. However, he acknowledged that the 3% growth seen in the most recent data includes a temporary hike from new minimum wages in some provinces.

Household debt remains a concern.

Governor Poloz told the committee Monday that it will take more time to assess the impact of rising interest rates on household’s ability to service debts.

But he added that there are signs that borrowing is slowing as consumers adjust to higher rates and new mortgage rules.

Source: https://www.canadianrealestatemagazine.ca/market-update/mortgage-rules-contributed-to-lacklustre-start-to-2018-says-poloz-241415.aspx

Consumer prices are up but below expectation

There was an expected rise in inflation in March but not by as much as economists were predicting.

Statistics Canada says that its consumer price index was up 2.3% year-over-year, slightly below the 2.4% consensus forecast, but increasing from the 2.2% rate in February.

The 2.4% rate was the largest annual rise for the index since 2014 but was driven by higher costs of gasoline. Without that element, the CPI was up 1.8%.

Although the rise in food costs was lower than in the previous month the only one of the major components of the CPI to post a decline was clothing and footwear.

“After some excitement at the move higher in inflation in February, price pressures appear to have settled down a touch in March,” said James Marple, senior economist at TD Economics.

“With the Bank of Canada upgrading its outlook for inflation and noting temporary factors as the reason for near-term strength, there is a high bar for inflation to jump over to get the central bank to move faster on raising interest rates. Still, one more hike is likely on tap this year, consistent with the improved outlook for future economic growth, both globally and domestically,” he added.

Source: https://www.canadianrealestatemagazine.ca/market-update/consumer-prices-are-up-but-below-expectation-241333.aspx

Canadians are divided over the desirability of grow-ops - poll

Even with the slated legalization of cannabis in late summer 2018, a significant number of Canadians still believe that a property which has been used to grow marijuana is a suboptimal prospect for a home purchase.

The latest survey conducted by real estate data portal Zoocasa found that 47% of the respondents said that even a legal amount of marijuana grown in a home would reduce their desire to buy the property. 52% of those polled in Quebec agreed, as did 48% in both B.C. and Ontario. Meanwhile, only 31% in Atlantic Canada agreed.

Millennials appear to be far more open about the presence of the herb on their properties. 19% of respondents in this demographic said that they would consider growing a legal amount of cannabis at home, compared to only 11% of baby boomers polled.

In terms of consumption, 39% of respondents from all provinces surveyed stated that increased marijuana use in homes will decrease property values. 45% of Quebec respondents agreed, while only 26% of respondents in Atlantic Canada did so.

As for the impact of dispensaries on the value of nearby residential properties, 32% of respondents from all provinces surveyed indicated a belief that the presence of these facilities will have a negative impact on the value of nearby homes. 35% of those polled in Ontario agreed, while the figure was only 23% in Alberta.

Millennials' interest in home ownership intensifies

The results of a recent study conducted by Royal Bank of Canada showed that fully 32% of Canadians are likely to buy a home in the next two years (up by 7% from last year), with millennials comprising a clear majority of this purchase-intention cohort.

The annual RBC Home Ownership Poll found that 50% of millennials (those aged 18 to 34) expressed the strongest desire to buy homes in the near future. RBC pointed at resurging confidence in the economy and employment as the main motivators for boosted home purchase intentions among Canadians.

With the increased financial pressure brought about by the latest Stress Test Guidelines issued by the Office of the Superintendent of Financial Institutions (OSFI) for uninsured mortgages, 55% of respondents indicated that the revised rules are affecting their purchase decisions. These include making higher down payments (25%), delaying home purchases (19%) or buying a less expensive, smaller home or a less expensive one in a different location (18% each).

“Canadians continue to feel optimistic about getting into the housing market despite changes in government regulations. They’re taking a more informed journey to home ownership by starting with affordability,” according to Nicole Wells, vice president for Home Equity Financing, RBC.

“With the right tools and a detailed roadmap that navigates the journey, Canadians are better prepared to make one of the biggest decisions – and it’s based on facts, not emotions.”

84% of millennials expressed confidence in purchasing a home as a “very good or good investment”, compared to 79% in 2017. Millennials are also feeling less anxiety about employment (36% vs. 47% in 2017) and less uncertainty about the economy (19% vs. 28% in 2017).

Furthermore, 35% of Canadians indicated in the poll that they had received, or would be receiving, financial assistance from their families for their down payments. Meanwhile, 36% are planning to do it on their own with a dedicated savings account.

On the other hand, 61% are very or somewhat concerned about interest rate increases, going up by almost 10% from last year. 35% are thinking about buying a home sooner because of current low-interest rates, while another 32% were also thinking of doing so because of a potential increase in interest rates.

Source: https://www.canadianrealestatemagazine.ca/news/millennials-interest-in-home-ownership-intensifies-240606.aspx

Millennials set to drive housing boom reveals RBC poll

Homebuying intention is at its highest in eight years as the growth in the Canadian economy fuels consumers’ confidence.

Despite the mortgage stress tests introduced at the start of 2018, a third of Canadians polled by RBC say they are very or somewhat likely to buy a home in the next two years.

Among millennials, the homebuying intention is even higher with 50% likely to buy.

Although more than half of potential buyers say that the OSFI mortgage regulations are affecting their buying decision, it does not mean they won’t buy at all.

A quarter of respondents said they will buy with a larger down payment and 18% will seek a smaller home or one in a less expensive area. Just 19% said the mortgage rules will delay their purchase and 39% were not aware of the stress tests.

Getting financial assistance from family is the plan of 36% with the same share having a dedicated savings account of their own which will fund the down payment.

Finding the right home is the top challenge cited by the RBC Home Ownership Poll, followed by deciding how much they can afford.

Interest rates are an important factor in the homebuying decision with 61% of respondents saying they are concerned about rates and a combined two thirds citing current low rates, or the potential of rate rises, for wanting to buy a home sooner

Source: https://www.canadianrealestatemagazine.ca/market-update/millennials-set-to-drive-housing-boom-reveals-rbc-poll-240414.aspx

Interest rates impact affected by aging population

In “Faulty Transmissions: How Demographics Affect Monetary Policy in Canada” authors Steve Ambler and Jeremy Kronick highlight that over the past decade inflation has averaged 1.5%, missing the BoC’s 2% target.

“Canada’s aging population is likely a leading cause of the systematic undershooting of inflation we have seen since the financial crisis,” says Ambler. “Specifically, an aging population that takes on less debt is less sensitive to changes in the interest rate.”

Increased consumer spending usually results from lower interest rates due to the lower cost of credit, but the report notes that if there are more older adults, with less credit, this is lessened as are the effects of rising rates.

“Credit plays an important role on the real economy – it magnifies the reduction in the effectiveness of monetary policy that comes from an aging population,” Kronick explains. “Because of population aging, lower interest rates have not generated the typical increase in spending, leading to subdued inflation and lower economic growth.”

The authors conclude that if inflation-targeting measures are less effective, it may be necessary for the BoC to increase interest rates more significantly and to consider less conventional monetary policy.

Source: https://www.canadianrealestatemagazine.ca/market-update/interest-rates-impact-affected-by-aging-population-240013.aspx