Month: December 2017

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28 Dec

Is 2018 the year to buy a home? 5 factors that could affect housing prices

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Posted by: Frederic Pichette

Josh Writer


Published Thursday, December 28, 2017 6:00AM EST 

What a difference a year makes in Canada’s housing market.

Let’s say you purchased a typical Toronto home in March 2016. It would have cost you, on average, $688,011 — an unimaginably high amount to many people just a few years earlier. If you decided to sell that home one year later in March 2017, it would have fetched around $916,567 — an incredible $228,556 more.

But let’s say you had hung onto it for another five months, until after the Ontario government slapped a tax on foreign buyers and expanded rent control. It would have been back down to $732,292.

That roller-coaster ride was all too familiar people in Vancouver. Prices there shot up 31 per cent from $708,500 in August 2015 to $933,100 one year later, in August 2016, before cooling back down to $896,000 in January 2017, four months after British Columbia implemented a foreign buyers’ tax.

The direction of prices in Vancouver has since reversed again. A new record average of $1,046,900 was set in November.

Things haven’t been nearly as volatile in many other parts of the country but the typical home prices nationwide did rise 13 per cent between the third quarter of 2016 and the third quarter of 2017, from $555,000 to $628,000.

Thankfully for those hoping to jump into the market, 2018 could be the year the market finally calms down. Experts say that while some factors will continue to push prices upward, other factors are likely to push them back down, meaning that, overall, the prices shouldn’t rise nearly as quickly.

Royal LePage expects a 4.9-per-cent increase next year to $661,919 for the typical home in the 53 cities it tracks. RBC, meanwhile, predicts just a 2.2-per-cent increase in the national average, to $501,400.

Here are five of the factors expected to keep the market more balanced in 2018.

1. OFSI’s Stress Test rules

The government regulator known as the Office of the Superintendent of Financial Institutions will require all homebuyers taking out mortgages from the lenders that it regulates to meet a “stress test” as of Jan. 1. That means buyers going to a Big Five bank for a mortgage will need to prove they can afford the Bank of Canada prime rate, even if their lender plans to give them a lower rate. For example, if the prime rate is 4.99 per cent, a buyer would need to show he or she can afford a 4.99 per cent interest rate even if they have such excellent credit that they’re offered a mortgage at 2.99 per cent interest.

That two percentage point difference might not sound like much, but it would translate to hundreds of dollars per month on a typical mortgage, thereby reducing the amount for a house many people can afford.

Phil Soper, President of Royal LePage, says that the new rule will take some transactions out of the market because many of the people who were planning to “move up” to a pricier house will no longer qualify for bigger mortgages.

That could push prices down somewhat, and first-time homebuyers could benefit because they usually don’t have a 20 per cent down payment, which means that they have long been subject to the same stress test when taking out mandatory mortgage insurance.

That said, Soper thinks the stress test may also have a subtler effect on the market than some believe. He points out that banks have already been putting people under their own internal stress tests for years, even if they don’t advertise it. What’s more, people renewing mortgages with the same lenders won’t be tested, Soper says. He also points out that the rule only applies to OFSI-regulated lenders, but not to what he calls “grey market” lenders, such as Home Capital Group, Equitable Group and Capital Direct.

TD Economics estimates that the new rule will cut demand for homes by five to 10 per cent, shaving two to four per cent off prices.

Toronto-based broker John Pasalis points out that many people who might have been affected will have rushed to buy houses before the Jan. 1. deadline, so the true impact is “anyone’s guess.”

2. Interest Rates

The amount of interest that lenders charge homebuyers reflects the cost of borrowing from the Bank of Canada, so when the Bank of Canada raises rates (usually when the economy is growing), lenders pass that cost on to consumers with higher mortgage rates. The higher the rate, the lower the number of people who can afford homes. When fewer people are buying, prices fall.

With the economy is growing at a healthy pace, Royal Bank economists say that they expect the Bank of Canada to hike its overnight rate by another 100 basis points to two per cent by the end of 2018.

TD Bank, meanwhile, says that the impact of rising rates “will be felt disproportionately within a few key markets where affordability is the most challenged: Vancouver, Toronto and Montreal.”

Soper agrees. He thinks the impact of rising rates on prices will be modest. “Mortgage rates will still be lower than they were 10 years ago and five years ago,” he points out.

3. ‘Peak millennials’

The children of the baby boomers, known as millennials, make up one of the biggest demographics in history, and they’re reaching home-buying age in record numbers.

Statistics Canada reports that there will be a projected 2,559,200 people between the ages of 25 and 30 in 2018 — up 150,000 from five years earlier.

“The pent-up demand for housing from millennials is enormous,” Soper says. “It’s just such a large cohort of people that are moving into the prime first-home space.”

Royal LePage hired a company to survey 1,000 millennials in June and they found that only 35 per cent of them already owned a home. Of those who didn’t yet own, 69 per cent said they wanted to buy within the next five years.

That means that even if some people are pushed out of the market by things like the OFSI stress test and rising interest rates, there could be many other first-time buyers looking to take their place, pushing prices up.

4. Immigration growth

Another factor that can push prices up is immigration.

Canada added between 236,800 and 281,000 immigrants annually between 2004 and 2014. The Liberals boosted the number to 296,000 in 2016, an expected 300,000 in 2017 and are targeting 310,000 in 2018.

Soper says immigration will continue to increase demand, pushing prices up, particularly in the big cities where new immigrants are most likely to settle.

5. International policy decisions

Sometimes policy decisions in other countries can affect the market here.

The last time there was a major nationwide drop in home prices in Canada was between the fourth quarter of 2007 to the first quarter of 2009, when prices fell 11 per cent, according to CMHC.

Pasalis, the president of Realosophy Realty, says that “a lot of that was consumer confidence” related to the foreclosure crisis in the United States, where policymakers had allowed all kinds of risky lending that was never actually a problem in Canada.

“People were freaked out about the housing markets around the world,” Pasalis says. “If consumers start becoming less confidence, they hit pause on a lot of things.”

An example of a policy decision that could impact Canada in 2018 is New Zealand’s plan to ban non-resident foreigners from buying resale homes. While it’s a small country, that decision could push wealthy global investors to take a closer look at Canada, driving up prices here. “These are certainly concerns,” Pasalis says.

Taken together, Pasalis and Soper, along with RBC and TD, all forecast that prices will continue to rise in most parts of the country, but at a more modest pace.

14 Dec

New mortgage rules 2018: A practical guide

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Posted by: Frederic Pichette



Come Jan. 1, 2018, Canadians getting, renewing or refinancing a mortgage might have to prove that they would be able to cope with interest rates substantially higher than their contract rate.

New rules by Canada’s federal financial regulator announced in October mean that even borrowers with a down payment of 20 per cent or more will now face a stress test, as has been the case since January of 2017, for applicants with smaller down payments who require mortgage insurance.

This is the seventh turn of the screw — and it could have a big impact.

Some 10 per cent of Canadians who got an uninsured mortgage between mid-2016 and mid-2017 would not have qualified under the new standards, a recent analysis by the Bank of Canada suggested.

To put a number on it, the rules will likely affect about 100,000 homebuyers, who would qualify for a mortgage for their preferred house today but will likely fail the stress test for an equally large loan next year, according a report published by Mortgage Professionals Canada, an industry group.

Here’s how the new guidelines might affect you:

If you’re planning to buy a house with a downpayment of 20 per cent or more next year

The stress test means that financial institutions will vet your mortgage application by using a minimum qualifying rate equal to the greater of the Bank of Canada’s five-year benchmark rate (currently 4.99 per cent) or their contractual rate plus two percentage points.

If you’re going be house-hunting next year, this may force you to settle for a less expensive home than you would be able to buy today. Or, you might have to wait and save up for a larger down payment.

READ MORE: Here’s how much house you’ll be able to buy with the new mortgage stress test

The rules might force Canadians to set their eyes on homes that are up to 20 per cent cheaper. But since few homebuyers are stretching their finances to the limit when applying for a mortgage, the average target price reduction will likely be smaller, $31,000, or 6.8 per cent, according to Will Dunning, chief economist at Mortgage Professionals Canada.

Of the 100,000 or so prospective home buyers that will hit a snag because of the stress test next year, Dunning estimates that about half will be able to make a different purchase than they had planned. The rest will give up on a home purchase.

READ MORE: New data shows how much it costs to rent a 2-bedroom unit across Canada

If you’re renewing your mortgage next year

Lenders don’t have to apply the stress test to clients renewing an existing mortgage.

This means that if you fail the stress test, you’ll probably get stuck renewing with your current financial institution, without being able to shop around for a better rate.

In some cases, “renewing borrowers may be forced to accept uncompetitive rates from their current lenders,” Dunning noted.

READ MORE: Failed the mortgage stress test? Alternative lenders await — at a price

If you’re refinancing your mortgage

If you’re planning on refinancing your mortgage, you’ll have to qualify according to the higher stress-state rates rather than your existing contractual mortgage rate, explained James Laird, president at Toronto-based CanWise Financial.

Say, for example, that you bought a $400,000 home and have a $100,000 mortgage balance left. You’d like to borrow $50,000 more for a renovation. You have a five year fixed-rate mortgage at 3.3 per cent.

Today, your lender would make sure that you can take on a $150,000 loan at 3.3 per cent, said Laird.

Starting next year, your financial institution would have to vet that $150,000 loan using a 5.3 per cent rate. If you’re close to the borrowing limit today, you might have to settle for a smaller loan.

READ MORE: Home renovations: The 4 big risks of borrowing against your house to pay for it

Four cases in which the rules likely won’t affect you

As they generally do, financial regulators have allowed for measures that will ease the transition, making sure the new rules don’t disrupt transactions that are underway by not yet completed in early 2018.

If you sign a purchase agreement on a new home before Jan. 1., lenders won’t have to apply the stress test even if you apply for a mortgage in the new year, said Laird.

This holds for pre-construction sale and purchase agreements, too, he added.

“Usually there’s eventually a cutoff,” said Laird, though in this case it’s not yet clear when that will be.

If you are pre-approved for a mortgage, some lenders will give you 120 days starting Jan. 1 to buy your new home without worrying about the new rules.

The same holds for mortgage refinancing. If you have a mortgage refinance commitment in place by Dec. 31, you have 120 days to follow suit, said Laird.

Of course, the stress test won’t have much of a concrete impact on you if you pass it. Borrowers with plenty of spare financial capacity will be able to go about their business.

About credit unions

The Office of the Superintendent of Financial Institutions (OSFI) rules only apply to federally regulated financial institutions, meaning Canadians might be able to continue borrowing without a stress test if they turn to provincially-regulated credit unions.

READ MORE: As tougher federal mortgage rules loom, will Canadians turn to credit unions?

In the past, however, credit unions have voluntarily adopted new federal standards on mortgage rates “pretty quickly,” said Laird.

Still, adopting rules on a voluntary basis means they would be able to make some exceptions, he added.

The stress test measures only one of three risk metrics lenders look at, said Laird. Essentially, it ensures that borrowers’ housing expenses compared to their income remain below a certain threshold even if rates rise.

But when evaluating a borrower, financial institutions also look at the size of the loan compared to the price of the house, as well as credit scores.

A credit union that has voluntarily adopted the stress test, might make an exception for a family with very strong credit scores and a down payment considerably higher than 20 per cent, even if they fail to qualify under the new rules by a small margin, said Laird.

© 2017 Global News, a division of Corus Entertainment Inc.

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10 Dec

Surge of condo sales propels Montreal-area real estate to best November in years

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Posted by: Frederic Pichette

There were a total of 3,348 residential sales this month, in and around Montreal


The Greater Montreal Real Estate Board says the region set a November record for condominium sales, which helped fuel a 12 per cent increase in overall residential transactions compared with the same month last year.

The number of condo sales across the region surged 23 per cent from last year to 1,137 in the month as the suburbs north and south of the Island of Montreal rose by 53 per cent and 33 per cent respectively.

Real estate board president Mathieu Cousineau says the oversupply of condos two years ago has now been completely absorbed and there is a seller’s market in some Montreal neighbourhoods.

Sales of single-family homes in November were 1,807 (eight per cent higher than last year) while plexes with two to five units were up five per cent to 402.

With 3,348 residential sales concluded in the month, it was the most active November in eight years.

Paul Cardinal of the Quebec Federation of Real Estate Boards has attributed monthly housing gains this year to strong job creation, consumer confidence, low unemployment and foreign migration.

With consumer confidence reaching a 10-year high, he has said people are viewing it as a good time to make a major purchase like a house.

November’s growth was led by communities on the south shore of Montreal, which was up 19 per cent, and 13 per cent more sales on the Island of Montreal.

The average sales price in Greater Montreal increased six per cent to $387,254 in November.

On the Island of Montreal, the average sales price was $496,103, up five per cent from $471,380 a year ago.