Overlooked market sees full year of monthly price gains

Greater Moncton has seen over 12 months of year-over-year price gains, with its September MLS Home Price Index coming in at +4.2% year-over-year.

This, despite the average price decreasing 7.9% year-over-year. The Moncton Real Estate Board argues the average price doesn’t provide the most accurate picture of market performance.

“While the use of average price information can be useful in establishing trends when applied over a period of time, i.e. six months or longer, the Greater Moncton Realtors du Grand Moncton cautions that an average price does not indicate the actual value of any particular property,” it said.

Another home price index, Royal LePage’s Composite saw aggregate prices in Moncton increasing 1.5% year-over-year.

Sales, meanwhile, were up 7.9% year-over-year last month.

 “The year-to-date sales figure continues to reflect conditions that are now five months in the rear-view mirror, and it masks how strong activity has become, most notably September sales setting a new all-time record for that month,” Trent Wilkins, president of the Greater Moncton Realtors du Grand Moncton, said. “With activity up and supply trending lower, the market is currently in better balance than it has been in years, and that is showing up in the MLS HPI data.”

With the country’s investors traditionally focusing on markets in Alberta, British Columbia, and Ontario, it may seem like out-of-the-box thinking to consider smaller markets.

But with new mortgage rules that are expected to impact larger markets more than their smaller counterparts, it may be time for speculators to look outside the three major provinces to see what deals can be had.

Even if Atlantic Canada fails to entice you, Moncton’s recent performance is a small reminder that small markets may contain some gems.







Source: http://www.canadianrealestatemagazine.ca/news/overlooked-market-sees-full-year-of-monthly-price-gains-215737.aspx

Fed mortgage changes inject uncertainty into real estate market, CREA says

The federal government's recent changes to mortgage lending rules have injected uncertainty into the real estate market, the president of the Canadian Real Estate Association said Friday.

The measures _ which include an expansion of a stress test for borrowers that takes effect Monday _ could deter first-time homebuyers, said Cliff Iverson, who represents more than 100,000 real estate brokers across the country.

''The finance minister's recent changes to regulations affecting mortgage lending has added to housing market uncertainty among buyers and sellers,'' Iverson said in a news release.

''For first-time homebuyers, the stress test for those who need mortgage default insurance will cause them to rethink how much home they can afford to buy.''

Gregory Klump, CREA's chief economist, said the effects on first-time homebuyers will likely trickle down.

"First-time homebuyers support a cascade of other homes changing hands, making them the linchpin of the housing market,'' Klump said in the same statement.

"The federal government will no doubt want to monitor the effect of new regulations on the many varied housing markets across Canada and on the economy, particularly given the uncertain outlook for other private sector engines of economic growth.''

Markets where the supply of available homes is tight, such as Toronto, are likely to be affected the most, said Klump.
The federal government said it introduced the rule changes in response to concerns about eroding affordability and overstretched consumers, particularly in the Toronto and Vancouver markets.

The new rules _ which will include stress tests for all insured loans _ will help stabilize the market by preventing buyers for taking on bigger mortgages than they can afford, Finance Minister Bill Morneau has said.

CREA's comments came as it released figures for home sales last month, which saw a 0.8 per cent increase nationally compared with August. Compared with a year ago, the number of home sales was up 4.2 per cent from September 2015.

"I think it's a blip on the radar,'' Klump said in an interview, referring to the uptick in sales volume.

"I think the tighter mortgage regulations are more likely to cause sales to recede than they are going to contribute to an increase in sales.''

Home sales in the Toronto region rose while they continued to fall in and around British Columbia's Lower Mainland region, which includes Vancouver.

Sales in and around Vancouver have fallen sharply since the August implementation of a 15 per cent tax on foreigners purchasing homes in the city.

"The million dollar question now is whether foreign investment has shifted east and Toronto has become the new Vancouver,'' TD Bank economist Diana Petramala wrote in a report.

The national average price for a home sold in September was up 9.5 per cent compared with a year ago at $474,590.

Excluding the expensive Greater Vancouver and Greater Toronto regions, the average price was $358,884 last month.

The number of newly listed homes on the market was up 0.5 per cent in September compared with August, while the national sales-to-new listings ratio stood at 62.1 per cent compared with 61.9 per cent in August.







Source: http://www.canadianrealestatemagazine.ca/news/fed-mortgage-changes-inject-uncertainty-into-real-estate-market-crea-says-215578.aspx

Mortgage rules are “prudent” says CIBC boss

The chief executive of CIBC says that the new mortgage rules coming into effect Monday are “prudent” and will have a positive effect on the Canadian housing system.

Speaking at an economic forum in Ottawa, Victor Dodig told The Canadian Press that it’s a balancing act to keep the housing market and construction sector buoyant while ensuring that mortgage lenders and banks are lending prudently.

For domestic homebuyers including first-time buyers, Mr Dodig said that he expected a “relatively modest” impact from the changes, which he believes will have long-term benefits.








Source: http://www.canadianrealestatemagazine.ca/market-update/mortgage-rules-are-prudent-says-cibc-boss-215393.aspx

Four major changes to Canada’s housing rules

The Liberal government has announced sweeping changes aimed at ensuring Canadians aren’t taking on bigger mortgages than they can afford in an era of historically low interest rates.

The changes are also meant to address concerns related to foreign buyers who buy and flip Canadian homes.

Below is a breakdown of the four major changes Finance Minister Bill Morneau announced Monday.

The current rules

Buyers with a down payment of at least 5 per cent of the purchase price but less than 20 per cent must be backed by mortgage insurance. This protects the lender in the event that the home buyer defaults. These loans are known as “high loan-to-value” or “high ratio” mortgages.

In situations in which the buyer has 20 per cent or more for a down payment, the lender or borrower could obtain “low-ratio” insurance that covers 100 per cent of the loan in the event of a default.

Mortgage insurance in Canada is backed by the federal government through the Canada Mortgage and Housing Corp. Insurance is sold by the CMHC and two private insurers, Genworth Financial Mortgage Insurance Company Canada and Canada Guaranty Mortgage Insurance Company. The federal government backs the insurance offered by the two private-sector firms, subject to a 10-per-cent deductible.

The change

Expanding a mortgage rate stress test to all insured mortgages.

What it is

As of Oct. 17, a stress test used for approving high-ratio mortgages will be applied to all new insured mortgages – including those where the buyer has more than 20 per cent for a down payment. The stress test is aimed at assuring the lender that the home buyer could still afford the mortgage if interest rates were to rise. The home buyer would need to qualify for a loan at the negotiated rate in the mortgage contract, but also at the Bank of Canada’s five-year fixed posted mortgage rate, which is an average of the posted rates of the big six banks in Canada. This rate is usually higher than what buyers can negotiate. As of Sept. 28, the posted rate was 4.64 per cent.

Other aspects of the stress test require that the home buyer will be spending no more than 39 per cent of income on home-carrying costs like mortgage payments, heat and taxes. Another measure called total debt service includes all other debt payments and the TDS ratio must not exceed 44 per cent.

Who it affects

This measure affects home buyers who have at least 20 per cent for a down payment but are seeking a mortgage that may stretch them too thin if interest rates were to rise. It also affects lenders seeking to buy government-backed insurance for low-ratio mortgages.

Why

The government is responding to concerns that sharp rises in house prices in cities like Toronto and Vancouver could increase the risk of defaults in the future should mortgage rates rise.

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The change

As of Nov. 30, the government will impose new restrictions on when it will provide insurance for low-ratio mortgages.

What it is

The new rules restrict insurance for these types of mortgages based on new criteria, including that the amortization period must be 25 years or less, the purchase price is less than $1-million, the buyer has a credit score of 600 and the property will be owner-occupied.

Who it affects

This measure appears to be aimed at lowering the government’s exposure to residential mortgages for properties worth $1-million or more, a category of the market that has increased sharply in recent years in Vancouver and Toronto.

Why

Vancouver and Toronto are the two real estate markets that are of most concern for policy makers at all levels of government. These measures appear to be targeted at those markets.

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The change

New reporting rules for the primary residence capital gains exemption.

What it is

Currently, any financial gain from selling your primary residence is tax-free and does not have to be reported as income. As of this tax year, the capital gains tax is still waived, but the sale of the primary residence must be reported at tax time to the Canada Revenue Agency.

Who it affects

Everyone who sells their primary residence will have a new obligation to report the sale to the CRA, however the change is aimed at preventing foreign buyers who buy and sell homes from claiming a primary residence tax exemption for which they are not entitled.

Why

While officials say more data are needed, Ottawa is responding to extensive anecdotal evidence and media reports showing foreign investors are flipping homes in Canada and falsely claiming the primary residence exemption.

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The change

The government is launching consultations on lender risk sharing.

What it is

Currently, the federal government is on the hook to cover the cost of 100 per cent of an insured mortgage in the event of a default. The federal government says this is “unique” internationally and that it will be releasing a public consultation paper shortly on a proposal to have lenders, such as banks, take on some of that risk. The Department of Finance Canada acknowledges this would be “a significant structural change to Canada’s housing finance system.”

Who it affects

Mortgage lenders, such as banks, would have to take on added risk. This could potentially lead to higher mortgage rates for home buyers.

Why

The federal government wants to limit its financial obligations in the event of widespread mortgage defaults. It also wants to encourage prudent lending practices.

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Five previous federal housing moves since 2008

Monday’s package of announcements is the sixth time since the onset of the 2008 financial crisis that Ottawa has taken policy action in response to concerns about Canada’s housing market.

July, 2008: After briefly allowing the CMHC to insure high-ratio mortgages with a 40-year amortization period, then Conservative finance minister Jim Flaherty moved to tighten those rules by reducing the maximum length of an insured high-ratio mortgage to 35 years.

February, 2010: Responding to concern that some Canadians were borrowing too much against the rising value of their homes, the government lowered the maximum amount Canadians could borrow in refinancing their mortgages to 90 per cent of a home’s value, down from 95 per cent. The move also set a new 20-per-cent down payment requirement for government-backed mortgage insurance on properties purchased for speculation by an owner who does not live in the property.

January, 2011: The Conservative government under Stephen Harper tightened the rules further, dropping the maximum amortization period for a high-ratio insured mortgage to 30 years. The maximum amount Canadians could borrow via refinancing was further lowered to 85 per cent.

June, 2012: A third round of tightening brought the maximum amortization period down to 25 years for high-ratio insured mortgages. A new stress test was also introduced to ensure that debt costs are no more than 44 per cent of income for lenders seeking a high-ratio mortgage. Refinancing rules were also tightened for a third time, setting a new maximum loan of 80 per cent of a property’s value. Another new measure limited the availability of government-backed insured high-ratio mortgages to homes valued at less than $1-million.

December, 2015: The recently elected Liberal government moved to tighten lending rules for homes worth more than $500,000, saying it was focused on “pockets of risk” in the housing sector.

The package of measures included doubling the minimum down payment for insured high-ratio mortgages to 10 per cent from 5 per cent for the portion of a home’s value from $500,000 to $1-million.

 

 

 

 

Source: http://www.theglobeandmail.com/real-estate/four-major-changes-to-canadas-housing-rules/article32223470/

Home buyers to benefit from possible real estate slowdown

A chief economist at a mortgage broker network said a slowdown in real estate sales has provided potential home buyers with an opportunity to take a respite in what has been an emotionally charged market.

Dr. Sherry Cooper of Dominion Lending Centres advised purchasers to take this time to assess their financial situation and what they can realistically afford, as well as confer with an accredited mortgage professional about all the costs of owning a home.

“This is a good opportunity to save more money for a down payment, and give markets a chance to adjust to what I think will be a slowdown in price inflation and in activity,” Cooper said in an interview.

“Figure out what it would cost you, on a monthly basis, to live in the home you are about to buy and then imagine what your lifestyle is going to be, because in order to meet the rising costs of owning a home, you are most likely going to have to cut back on some of your other expenditures.”

Cooper said prices will likely continue to climb at a modest pace as new housing starts are not keeping up with new household foundations in Canada. She does not anticipate a price decline, particularly the kind of steep decline that would allow average families to afford single-family homes in cities like Toronto and Vancouver.
“The kind of price decline you would need to make a home affordable for the average person in those cities would actually be extremely negative for the economy. That would be extremely negative for the average person, because they could lose their job. It’s partly a matter of ‘be careful of what you wish for.’”

Cooper welcomed the slowdown in price inflation, as bidding wars often lead purchasers to make irrational decisions, leaving them vulnerable to spending more than they can afford.

“Often it becomes so emotional and irrational that it becomes very tempting to go beyond your real comfort zone in terms of affordability,” Cooper said.

Home buyers looking for an affordable home may consider moving to a smaller community, such as in cities like Mississauga and Whitby in the Greater Toronto area; and Port Coquitlam and Maple Ridge in Metro Vancouver.







Source: http://www.canadianrealestatemagazine.ca/news/home-buyers-to-benefit-from-possible-real-estate-slowdown-214661.aspx