Interest rates impact affected by aging population

Canada’s aging population may lessen the impact of the Bank of Canada’s inflation-targeting policies and require interest rates to rise.

That’s according to a report from the C.D. Howe Institute which shows that the impact of monetary policy is limited by a larger share of older adults

“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

What to look for when making a condo investment

With property prices in many parts of the GTA continuing to rise, more Canadians are being forced to look further afield in their search for a home. Vast swathes have now accepted that the homeownership dream is unattainable and are refocusing their searches on renting luxury condominium developments for the long-term.

“The affordability factor is one of the main reasons why more Canadian investors are buying into condo developments,” says Kirin Singh, Vice President, ROi Developments.

When renting out a detached or semi-detached residential home, there’s always a risk that a problem tenant will cause damage to the outside of the home, which will bring down the value of the property. The collection of condo fees mitigates that risk.

“One of the biggest things in real estate is curb appeal, and when you invest in a condominium you can regulate that and control how the exterior of the property looks,” Singh says. “When a property is freehold anyone can do whatever they want. If you drive by a freehold rental building a year after it has been built, you can be sure it will not look the same as when it was brand new.”

There has long been an obsession with location in the real estate investing and while Singh understands the value of location, she believes another sometimes overlooked factor to be just as important: transportation. “Technological advancements mean that tenants can work remotely from anywhere and are not tied to downtown Toronto,” she says. “Work-life balance is becoming more important to people and living somewhere affordable with good transportation links is an option that more and more Canadians are now taking.”

Source: https://www.canadianrealestatemagazine.ca/infocus/an-investment-opportunity-with-a-difference/what-to-look-for-when-making-a-condo-investment-239754.aspx

New mortgage rules will drive investments in private lending

MICs and other private lenders currently account for 10% of all new residential mortgages in Ontario. This number will surely increase in the short-term as buyers look for alternative lenders not governed by OSFI. For savvy real estate entrepreneurs, investing in private mortgage vehicles in the coming years will provide stability and robust yield amidst this backdrop of rising rates and tightening regulations.

Real estate investors woke up to an entirely new lending landscape on January 1st. Now, they must meet stricter guidelines to qualify for lending as part of a new policy instituted by the Office of the Superintendent of Financial Institutions (OSFI).

The result is that all mortgage applicants must prove they can still afford payments at a higher interest rate -- the greater of either 2% above the qualifying rate or the five-year Bank of Canada benchmark rate (currently 4.99%).

As you are likely aware, this stress test was already in place for low-ratio mortgages, but now extends to all loans governed by OSFI regulations. Credit unions and private lending entities are not subject to OSFI regulations, but more on that later.

The Bank of Canada has said that these new regulations will affect about $15-billion in borrowing, primarily in the hot Toronto and Vancouver markets. This change holds important implications for first-time homebuyers in these markets, but what does it mean for investors like yourself?

But that’s not all

The above regulation changes are not the only game in town, we are also in a rising interest rate environment with further increases projected.

Indeed, CMHC predicts that the posted 5-year mortgage rate will fluctuate between 4.9%-5.7% throughout 2018, and rise to a range of 5.2%-6.2% in 2019. This is a big deal!

A search for yield amidst change

According to the Bank of Canada, the new rules will disqualify about 1 in 10 borrowers, and in places like Toronto and Vancouver, this ratio rises to 1 in 8. This will drive borrowers to other lending options such as private lending and mortgage investment corporations (MICs). This reality presents a great opportunity for investors looking for yield in the coming years.

Bank of Canada Governor Stephen Poloz believes that “people might also look for a lender that is not bound by these new mortgage rules so they can avoid facing the stress test.” This is where private lending comes in.

Bryan Jaskolka, Vice President at Canadian Mortgages Inc., notes that this environment will drive potential buyers to creative financing options. “Instead of settling for cheaper homes, holding off on home-ownership, or being forced into unfavourable lending terms, many home-buyers will move to creative financing options like private lending and MICs.” Indeed, RBC Capital Markets concurs, stating recently that it believes that its borrowers who don’t meet the new rules will turn to private lenders and MICs.

Source: https://www.canadianrealestatemagazine.ca/strategy/new-mortgage-rules-will-drive-investments-in-private-lending-237586.aspx

Genworth Canada publishes guide for first-time buyers

Private mortgage insurer Genworth Canada has published a workbook for first-time homebuyers.

The free guide covers topics including what to consider when buying a home, what to expect from the homebuying process, and how to budget for the maintenance of the home.

It also covers affordability and household budgets and how financial stability and credit management are critical to qualifying for a mortgage.

Written in simple language, it guides those who have never bought a home before through the stages of homebuying, advising on documents and information that buyers will require.

Source: https://www.canadianrealestatemagazine.ca/market-update/genworth-canada-publishes-guide-for-firsttime-buyers-239227.aspx

Condos, rental apartments lead home construction

The multi-family sector was the driver of increased permits issued by Canadian municipalities in January.

Statistics Canada says that permits issued for multi-family in Ontario totalled $974 million, a 71% surge following a near-40% drop in December.

Nationally, apartments accounted for around three quarters of the value of permits issued for multi-family homes. Multi-family permits were up 14.2% from December while single-family permits dropped 1.3% by value.

The total value of residential permits issued was $5.32 billion, up 5.9% from $5.03 billion in December.

Meanwhile, there was a slight rise in the 6-month trend measure of housing starts in February with CMHC reporting a trend of 225,276 units compared to 224,572 in January.

“The national trend in housing starts has been very stable since November 2017, masking offsetting trends for multi-unit and single-detached dwellings,” said Bob Dugan, CMHC’s chief economist. “Multi-unit starts have trended higher in recent months in most major urban centres while single-detached starts have trended lower.”

Highlights include a significant rise in starts in Victoria, dominated by new apartment rentals and condos. Rental apartments were also the big driver of starts in Montreal.

Toronto and Vancouver saw increases in overall starts with condos and rental units again leading the rise.

Source: https://www.canadianrealestatemagazine.ca/market-update/condos-rental-apartments-lead-home-construction-238942.aspx

These are the best Ontario cities for investors

With several unusual circumstances affecting the economy and housing market, it’s more important than ever to have plenty of data when making home investment decisions.

That’s the view of Don R. Campbell, senior analyst at the Real Estate Investment Network (REIN), which has been assessing market conditions for investors and developers for three decades.

"This is the first time in the over 26 years of producing these reports that there are so many wild-cards in play each of which can have a direct impact on the housing markets across the province," he said.

REIN has just published its list of the ten best Ontario cities for investment, based on market fundamentals, where the cities are in the real estate cycle, and which markets are set to outperform their peers.

Ranked in order of potential for housing market strength over the coming five-year period, the top 10 are:

1. Ottawa
   2) Kitchener -Waterloo-Cambridge
   3) Hamilton
   4) Barrie
   5) Brampton
   6) Durham Region
   7) Toronto
   8) Kingston
   9) Orillia
   10) Grimsby and St. Catharines

REIN will host a Facebook Live seminar on its findings Wednesday at 11am PT/ 2pm ET.

Source: https://www.canadianrealestatemagazine.ca/market-update/these-are-the-best-ontario-cities-for-investors-238639.aspx

Rise in housing investment, income but debt service ratio is up

There has been an increase in housing investment and household disposable income according to the latest GDP figures.

Statistics Canada says that investment in residential construction was up 3.2% in the fourth quarter of 2017, following a flat third quarter.

Ownership transfer costs rose 9.3%, indicating increased resale activity, new housing construction was up 3%, while renovations edged down 0.1%.

Outlays on non-residential structures increased 1.3%, driven by a 2.1% rise in investment in engineering structures; while investment in non-residential buildings declined 0.8%.

Overall, the Canadian economy grew 0.4% in Q4, 2017 (in real GDP terms), the same as the previous quarter. Annualized, real GDP grew 1.7%.  Full-year real GDP was up 3% in 2017 compared to 1.4% in 2016.

Household spending was up 0.5%, decelerating from Q3’s 0.9% with financial and insurance services seeing one of the largest gains (1.5%).

Disposable income was up 1.3%, mainly due to wage increases (1.5%) with services leading the gains.

Canadians were saving more as income rises outpaced spending gains. The savings rate was up to 4.2% from 4% in the previous quarter.

However, the rising cost of interest payments (3%), mainly due to mortgage costs, meant the debt service ratio increased to 13.83%.

Source: https://www.canadianrealestatemagazine.ca/market-update/rise-in-housing-investment-income-but-debt-service-ratio-is-up-238596.aspx

Canadian Banks Are About To Make Things Much Harder For Foreign Buyers

Foreign buyers just got one of the most aggressive hurdles when buying Canadian real estate. The Canadian Imperial Bank of Commerce (CIBC) quietly notified its mortgage advisors the "Foreign Income Program" has ended. The program was replaced on February 1, 2018, with a new program designed to ensure compliance with B-20 guidelines from OSFI. This change will have a drastic impact on those that use foreign income to qualify for a mortgage, from one of Canada's largest banks.

The old system

Under the old system at CIBC it was amazingly easy for foreign buyers and international students to get a mortgage. If you had a deposit above 35 per cent, it was good enough to get an uninsured mortgage without your income being verified in many cases. For the bank to be at risk of a loss, the buyer would have to immediately stop paying their bills, and prices would have to decline by 35 per cent. A highly unlikely scenario. This process wasn't a secret, some branches even had signs advertising it.

Out with the old, in with the new

The new income verification system is much more strict, to comply with B-20 guidelines. The internal document sent to mortgage advisors walks them through the new system. The new requirements outlined include obtaining:

• The client's T1 General, complete with foreign income stated (line 104).
• CRA Form T1135, a.k.a. a Foreign Income Verification Statement, showing assets.
• Companies using income will require a CRA Form T1134, Information Return Relating To Controlled and Non-Controlled Foreign Affiliates.
• A Canadian credit bureau report, and a foreign credit bureau report to confirm any foreign liabilities.
• From the document, it appears the mortgages will be limited to the amount of overseas income and assets declared to the CRA. That doesn't sound like a huge deal, but it is for cities like Toronto and Vancouver. Increasingly, people moving into neighbourhoods with the most expensive homes, are declaring poverty levels of income. Some observers have speculated the only way this works, is if overseas income is not being declared locally. You know, because low income families usually can't even afford property taxes on a mansion.

Those planning on buying a house won't be able to declare poverty levels of income. Tax dodgers looking to get a mortgage, will have to pay the "additional" cost of local income taxes, to get a CIBC uninsured mortgage. Those income taxes are going to really kill profits on property, and have a chance of lowering sales. That or they can just not get a mortgage at one of Canada's largest banks, or any of the others expected to follow with similar rules.

Stress testing non-resident or non-permanent buyer incomes is also going to throttle capital. Previously, uninsured buyers could buy almost anything they could put a downpayment on. No need to actually prove you had sufficient income. Now that uninsured mortgages are required to be stress tested, and incomes need to be declared, these borrowers will be bound by the same rules as anyone else in Canada. Totally unfair, I know — but c'est la vie.

CIBC, a bank known for aggressively pursuing foreign buyers, is the first bank to roll out new foreign income checks. With other banks likely to follow, foreign money faces a new hurdle to buying a home with one of Canada's largest lenders. OSFI B-20 regulations may be more effective than a non-resident speculation tax, and China's capital controls combined. That is, if other banks follow with similar regulations, and the government doesn't add another measure to improve demand.

Source: http://www.huffingtonpost.ca/2018/02/20/canadian-banks-are-about-to-make-things-much-harder-for-foreign-buyers_a_23366498/?utm_hp_ref=ca-real-estate