Economic Drivers of Real Estate in Vancouver – DELOITTE

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Real estate market overview and current challenges

October, 2016
Stepping into 2017

Come join me as we learn from Jennifer Podmore-Russell of Deloitte, and her take on where is Vancouver’s real estate marketing heading as we step into 2017. This presentation brought to us courtesy of Wealthminds!

Click here for the full presentation.

I’ve also highlighted below some notable changes in our market which may affect you! Give us a call at (604) 629-7515 or fill out the form below if you’d like to learn more.

Changes in the market – BC’s Foreign Buyer Property Transfer Tax

On July 25, 2016, the BC government introduced legislative changes directed at BC’s residential housing market. The key changes include the introduction of an additional 15% property transfer tax (PTT), effective August 2, 2016, on transfers of residential properties within the Greater Vancouver Regional District (GVRD) to foreign entities or taxable trustees

Government Responses – Preventative Measures for a “Healthy, Competitive and Stable Housing Market”

Legislation release on October 3, 2016 included a “Mortgage rate stress test” for all insured borrowers and closing loopholes for the Principal Residence Exemption.

CMHC Fees Increasing May 1st

2011_mastheadPrintEnFollowing the February 28th announcement by CMHC – Mortgage Loan Insurance premiums will be increasing as of May 1st.  Insuance premiums will affect all owners buying or refinancing who required insured financing. This includes owners of rental properties. Existing insured mortgages are not affected. CMHC estimates the average Canadian homebuyer requiring insured financing will see an increase of approximately $5 to their monthly mortgage payment.  Feel free to ask us more by leaving a comment at the bottom of the page, and read below for the official bulletin!

CMHC to Increase Mortgage Insurance Premiums

OTTAWA, February 28, 2014 — Following the annual review of its insurance products and capital requirements, CMHC will increase its mortgage loan insurance premiums for homeowner and 1 – 4 unit rental properties effective May 1, 2014.

The increase applies to mortgage loan insurance premiums for owner occupied, self-employed and 1-to-4 unit rental properties, including low-ratio refinance premiums. This does not apply to mortgages currently insured by CMHC.

CMHC’s capital management framework is consistent with international practices and Canadian guidelines for mortgage insurers. Increased capital targets are consistent with Canadian and international industry trends and makes the financial system more stable and resilient.

“The higher premiums reflect CMHC’s higher capital targets” said Steven Mennill, CMHC’s Vice-President, Insurance Operations. “CMHC’s capital holdings reduce Canadian taxpayers’ exposure to the housing market and contribute to the long term stability of the financial system.”

For the average Canadian homebuyer requiring CMHC insured financing, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment. This is not expected to have a material impact on the housing market.

Effective May 1st, CMHC Purchase (owner occupied 1 – 4 unit) mortgage insurance premiums will increase by approximately 15%, on average, for all loan-to-value ranges.

Loan-to-Value Ratio Standard Premium (Current) Standard Premium (Effective May 1st, 2014)
Up to and including 65% 0.50% 0.60%
Up to and including 75% 0.65% 0.75%
Up to and including 80% 1.00% 1.25%
Up to and including 85% 1.75% 1.80%
Up to and including 90% 2.00% 2.40%
Up to and including 95% 2.75% 3.15%
90.01% to 95% – Non-Traditional Down Payment 2.90% 3.35%

CMHC reviews its premiums on an annual basis and, going forward, plans to announce decisions on premiums in the first quarter of each year. The homeowner premium increase follows changes CMHC made to its portfolio insurance product earlier this year.

As Canada’s national housing agency, CMHC draws on more than 65 years of experience to help Canadians access a variety of quality, environmentally sustainable, and affordable housing solutions that will continue to create vibrant and healthy communities and cities across the country.

For additional highlights please see attached backgrounder and key fact sheet.

Information on this release:

Charles Sauriol, Media Relations
613-748-2799
csauriol@cmhc-schl.gc.ca

Follow CMHC on Twitter @CMHC_ca

Backgrounder

  • Mortgage loan insurance helps protect lenders against mortgage default and enables consumers to purchase homes with a minimum down payment of 5% with interest rates comparable to those with a 20% down payment. Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price.
  • CMHC mortgage loan insurance premium is calculated as a percentage of the loan based on the loan-to-value ratio. The premium can be paid in a single lump sum but more frequently is added to the mortgage principal and amortized over the life of the mortgage as part of regular mortgage payments.
  • CMHC reviews its premiums on an annual basis and has adjusted them several times since being commercialized in 1998. Adjustments have included both increases and decreases to the premiums.
  • CMHC’s new premium rates will be effective for new mortgage loan insurance requests submitted on or after May 1, 2014. The current mortgage loan insurance premiums will apply for applications submitted to CMHC prior to May 1, 2014, regardless of the closing date. As is normal practice, complete borrower and property details must be submitted to CMHC when requesting mortgage loan insurance.
  • The increase applies to mortgage loan insurance premiums for residential housing of 1-to-4 units. This includes owner occupied, self-employed and 1-to-4 unit rental properties, including low-ratio refinance premiums.
  • In 2013, the average CMHC insured loan at 95% loan-to-value was $248,000. Using these figures, the higher premium will result in an increase of approximately $5 to the monthly mortgage payment for the average Canadian homebuyer. This is not expected to have a material impact on the housing market.
95% Loan-to-Value
Loan Amount $150,000 $250,000 $350,000 $450,000
Current Premium $4,125 $6,875 $9,625 $12,375
New Premium $4,725 $7,875 $11,025 $14,175
Additional Premium $600 $1,000 $1,400 $1,800
Increase to Monthly Mortgage Payment $3.00 $4.98 $6.99 $8.98

Based on a 5 year term @ 3.49% and a 25 year amortization

*Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.

85% Loan-to-Value
Loan Amount $150,000 $250,000 $350,000 $450,000
Current Premium $2,625 $4,375 $6,125 $7,875
New Premium $2,700 $4,500 $6,300 $8,100
Additional Premium $75 $125 $175 $225
Increase to Monthly Mortgage Payment $0.37 $0.62 $0.87 $1.12

Based on a 5 year term @ 3.49% and a 25 year amortization

*Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.

For more information visit http://www.cmhc.ca/en/hoficlincl/moloin/moloin_013.cfm

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Mortgage Rate wars may be coming our way

Mr. Oliver told reporters Thursday in Ottawa. “I listened to [BMO’s] explanation, his reasons. I reiterated what I’ve just stated — the government is gradually reducing its involvement in the mortgage market.”

bank_mortgage_rates_20140327

Reblogged from The Financial Post

TORONTO • Why did Bank of Montreal risk a (verbal) slap from Finance Minister Joe Oliver for daring to chop its five-year mortgage rate below 3%?

Because they knew the mortgage war is going to be different this time.

On previous occasions when the banks publicized rates below the government’s favoured minimum, they found themselves on the receiving end of angry calls from Mr. Oliver’s predecessor, Jim Flaherty, who resigned on March 18.

Mr. Oliver seems in no mood to quarrel with Bay Street and ready to largely leave the mortgage market to its own devices.

“There’s a market and the bank made its decision, and the chief executive officer of the Bank of Montreal informed me about it,” Mr. Oliver told reporters Thursday in Ottawa. “I listened to his explanation, his reasons. I reiterated what I’ve just stated — the government is gradually reducing its involvement in the mortgage market.”

Asked if the government would take further steps if a housing bubble formed, Mr. Oliver said: “I don’t have to get into a hypothetical negative.”

It’s a big change from Mr. Flaherty who didn’t jump on the banks every time they cut rates to new lows but certainly always let them know he was a coiled spring. He also didn’t mind opining on the “hypothetical negative” of what he viewed as overpriced housing in Toronto and Vancouver.

And, without Finance calling out the banks, there is a dearth of negative voices around this high-profile plunge below 3%.
Home loans are simply products that people buy, and when demand is strong the companies that produce those products — the banks — can charge higher prices, said Peter Routledge, an analyst at National Bank Financial. When demand falls off, prices move in the opposite direction.

“What [the rate cut] tells me is that household credit growth is slowing and BMO has reacted to slowing demand in the way one would expect,” Mr. Routledge said. “It’s textbook economics.”

In fact, other lenders are already providing even lower offers for five-year mortgages, though they’re mostly going about it more quietly.

Read 489 more words

How Canadian Mortgage Rates Are Impacted by Continued U.S. Fed Tapering – Monday Interest Rate Update (February 3, 2014)

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The U.S. Federal Reserve continued to taper its quantitative easing (QE) programs last week, announcing on Wednesday that it would reduce them from $75 billion/month to $65 billion/month.

This matters to Canadian mortgage borrowers for several reasons:

  • U.S. and Canadian monetary policies are tightly linked, making it highly unlikely that the Bank of Canada (BoC) will raise its overnight rate at least until the U.S. Fed hikes its equivalent Federal funds rate. Since the U.S. Fed has repeatedly said that it will not even consider raising the Fed funds rate until it has completely unwound its QE programs, the timing of this withdrawal acts as a kind of distant-early-warning system for Canadian variable-rate borrowers.

Reblogged from MoveSmartly.com | Dave Larock

  • The U.S. Fed taper is expected to strengthen the U.S. dollar and if the Loonie continues to depreciate against the Greenback, this will provide additional stimulus for our economy, particularly for our export-based manufacturers (which I wrote about last week).
  • The taper’s impact on our economy goes beyond monetary policy and exchange rates. For example, if QE is allowed to continue for too long it could fuel higher-than-expected U.S. inflation, which we would inevitably import over time. This would force the BoC to raise its overnight rate in response. Alternatively, if the withdrawal of QE pushes U.S. bond yields up, Government of Canada (GoC) bond yields, which move in lock step with their U.S. counterparts, would move higher and trigger a rise in our fixed-mortgage rates.

Here are the highlights from the Fed’s press release that included the most recent tapering announcement:

  • The Fed acknowledged the weak December U.S. employment data but expressed confidence in the broader U.S. labour market recovery, saying that “labor market indicators were mixed but on balance showed further improvement.” This implies that the Fed saw the most recent employment data as an anomaly that was impacted largely by seasonal factors, although a poor January jobs report could quickly alter that view.
  • The Fed made it clear that it will respond flexibly to changes in the U.S. economic outlook, saying that “asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.” That means that we should continue to expect bond-yield volatility as markets react to each new economic data release and try to interpret how it will affect the Fed’s QE tapering timetable.
  • “The Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.” Variable-rate borrowers take note: the Fed is reiterating that it will not raise its fed funds rate until well after QE has been completely unwound, and this bolsters my view that your rates shouldn’t be going up for some time yet.
  • “The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.” In other words, Fed policy is still being guided by fears over deflation, which it mitigates with loose monetary policy, as opposed to concerns about higher inflation, which it mitigates with tighter monetary policy.
  • The Federal Open Market Committee (FOMC) vote to continue tapering was unanimous for the first time since June 2011. Some thought that had more to do with giving Federal Reserve Chairman Bernanke a proper send off at his last Fed meeting, as opposed to there being real convergence of FOMC committee member viewpoints. We should get a better idea of where the FOMC’s four newly minted voting stand at the next Fed meeting on March 18.

Now that the Fed has followed through with its second round of tapering, the consensus is that it will continue ratcheting down its QE programs until they are completely unwound by the end of this year. Here are a few reasons why I think that timetable is optimistic:

  • In a recent article, economist and market analyst Greg Weldon estimated that the U.S. treasury will have to issue $500 billion in new debt to cover the U.S. federal government’s budget deficit for this year, to say nothing of the nearly $3 trillion in maturing U.S. government debt that will have to be rolled over in 2014. Today, the Fed buys almost all of the newly issued U.S. treasury debt so when it withdraws (tapers) its support for U.S. bonds, who will become the marginal buyer of new U.S. debt at anything close to today’s low yields? If U.S. bond yields move higher, as I think they inevitably will if the Fed continues to withdraw its support, will the Fed hold firm or will it then choose to reassess “the efficacy and costs of such purchases”?

Three reasons why the Bank of Canada is not trying to drive down the loonie

“The Bank of Canada’s most recent policy meeting this month revealed a growing dovish streak, raising questions about whether the bank is actively trying to drive down the loonie.”

Stephen Poloz

Reblogged from John Shmuel

It’s a policy approach that would make sense, considering the strength of the loonie has hurt Canadian exports in the past few years. The strategy of “talking down” a currency has been used to relatively successful effect in countries such as Australia and Norway.

But Charles St-Arnaud, Canada economist for investment bank Nomura, doubts the Bank of Canada is currently attempting something similar.

“While a weaker CAD would be welcomed by the Bank of Canada… we find that using the properties from the BoC’s projection model the size of the depreciation needed to compensate the loss in competitiveness and to bring back inflation to target would require a depreciation of CAD of between 25% and 30%,” he said. “A depreciation of the currency of this magnitude would be almost impossible to attain only through monetary policy and requires significantly lower commodity prices.”

Essentially, the loonie would need to become much weaker than it currently is for Canada to see any economic benefit. Driving it down by such a large margin would be extremely difficult and, even if it could be done, would create a whole host of other problems.

Mr. St-Arnaud points out others have argued the bank could create smaller benefits for the Canadian economy without going to such great lengths, but he counters those, too. Below, he lists three main arguments he’s heard for why the Bank of Canada is actively working to lower the loonie, and why he thinks they’re wrong.

1. Because he joined from EDC, Gov Poloz wants a weaker CAD: Interestingly, since Gov. Poloz took over the helm of the Bank of Canada, none of the policy decision communiqués have made reference to the currency and the reference to the strong Canadian has disappeared from Monetary Policy Reports. Furthermore, all is comment have pointed to the need for a flexible exchange rate that is determined by the market. Ultimately, we believe that the most important comments made by Governor Poloz since taking the helm of the BoC has been during his first public appearance when he said that ’the inflation target is sacrosanct’.

2. A strong CAD is the reason for the weakness in exports: Recent publications by the BoC suggests that the weakness in exports comes mainly from ongoing competitiveness challenges over the past decade that have been exacerbated by the appreciation of CAD over the period. While it is tempting to conclude that a weaker currency would solve the problem, the BoC also showed that the appreciation was driven by fundamentals and CAD is currently around fairvalue and, hence, hard to reverse. Moreover, while a weaker CAD would push exports higher, simulations from the BoC’s projection model suggests the magnitude of the FX move needed to push growth significantly above potential and close the output gap more rapidly is also big.

3. A weaker CAD would help bring inflation to target: Recent Bank of Canada research papers have shown that the pass-through from a weaker exchange rate to inflation has diminished over the past few decades. Moreover, simulation from the BoC projection model suggest that the impact of a CAD depreciation on inflation is also weak and would require a large depreciation to bring back inflation to target.

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Flaherty regrets massive growth of CMHC, vows mortgage action if needed

“Finance Minister Jim Flaherty said Friday he regrets that Canada’s housing agency has grown as large as it has and promised to take additional measures if a reduction in the amount of government insurance on mortgages is needed.

The value of home loans insured by Canada Mortgage & Housing Corp., which is backed by the federal government, has almost doubled since the end of 2006, saddling taxpayers with a growing liability as policy makers warn that gains in house prices may be unsustainable.”

jim-flaherty

Reblogged from Bloomberg News

“Regrettably, CMHC became something rather more grand I think than it was intended to be,” Flaherty told reporters today in Markham, Ontario, near Toronto. “We’ll see over time what that role should be.”

CMHC, set up in 1946 to address a post-war housing shortage, had assets of $289 billion as of Sept. 30, which would make it the nation’s sixth-largest bank.

The Finance Department and financial regulators have taken steps over the past four years to curb mortgage lending. Most recently, CMHC announced Nov. 29 that the agency would be paying a “risk fee” of 3.25% to the federal government on the insurance it writes, starting Jan. 1.

While measures introduced last year by regulators and Flaherty slowed the market temporarily, home sales and values rebounded as the year progressed. The average sales price of a home sold in the country this year is up 4.6%, according to Nov. 15 Canadian Real Estate Association data.

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Five things to do if you are over-extended on your mortgage

five-things

Reblogged from Financial Post, Andrew Allentuck

Mortgage default may be rare in this country, but nearly 9% of indebted households need 40% or more of their gross income to pay their debt service charges, says the Bank of Canada Financial System Review.

If you can see problems coming, then you can take action to avoid foreclosure, which happens when lenders run out of other alternatives and borrowers can do no more to pay their debts. Here are five options to consider when you are being crushed by mortgage payments:

1. Extend amortization: If the mortgage has been paid down to 10 or 15 years, then extending it to 20 to 25 years or even to 30 years will decrease payments. In a lot of cases this will work, says Elena Jara, director of education for Credit Canada Solutions, a Toronto-based non-profit organization which offers free credit counselling.

2. Seek better terms: You can go for lower interest rates with the same or a different lender but with a potential penalty, says Bill Evans, a mortgage broker with Mortgage Architects in Winnipeg.“If you are having trouble with payments with one lender, another may not want to take you on. But if you can present a case for a new income, you can go to a so-called specialty lender such as Home Trust or Optimum Trust for a fresh look at your problem and potential solutions,” Evans says. “If you just want to alleviate the problem, timing is crucial.”

3. Renew at a floating rate: There is more risk but lower interest cost in floating rate mortgages. If you are on a fixed rate mortgage with relatively high rates and want to go to a lower floating rate, perhaps by taking the mortgage to another lender, then there may be relief when it is time for loan renewal. The present lender may add a penalty, but over time, floating rates and the often attractive rate on a one-year closed loan can offer relief, Mr. Evans says.

4. Sell it and rent: In markets with high home prices as a result of speculative building, absentee owners will often rent at relatively low cost. That makes for good deals for renters.

5. Discuss a consumer proposal
The homeowner can avoid outright bankruptcy and foreclosure of the home by talking to creditors, suggests Bruce Caplan, trustee in bankruptcy for BDO Canada Ltd. in Winnipeg. “The homeowner can make a consumer proposal in which a settlement plan is devised for the creditors. Secured creditors such as the banks or private mortgage lenders can work out new terms such as reduced payments or a payment bridge for a period of time with the homeowner,” he suggests.

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Calgary business school introduces new centre for real estate education

westman

Reblogged from The Financial Post, Dan Ovsey

With home prices on the rise in Calgary and a steady stream of construction projects on the go, real estate observers have been keeping a close eye on the Canada’s energy heartland and how it develops.

Now, a new centre at the University of Calgary’s Haskayne School of Business is aiming to groom the next cohort of real estate leaders to meet the city’s future needs in a sustainable and responsible way.

The school announced this morning that the new Jay Westman Centre for Real Estate will offer academic and research programs to students and faculty while also serving as a partner to the city’s thriving real estate industry.

The Centre is being launched with a $5-million donation from Jay Westman, owner and co-founder of Jayman, one of western Canada’s largest home builders.

“The industry has really come of age here,” said Mr. Westman in a press release. “I am committed to its ongoing strength through the development of responsible business leaders, and I believe the Haskayne School of Business is the place to make that happen.”

Almost 60,000 homes have been built in Calgary since 2011, which remains below the pre-recession boom years of 2005-2007 when more than 70,000 homes were built. In addition, approximately 4 million square feet of downtown commercial real estate is currently under construction in Calgary.

Jayman has built more than 21,000 single and multi-family homes in western Canada over more than three decades and has diversified its business to include financial, design and development divisions.

While Haskayne has offered elective courses in real estate in the past to business undergraduates and MBA students, the donation from Mr. Westman will allow the school to offer a full undergraduate concentration in real estate in the next two years.

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Bank of Canada may not hike rates back to ‘normal’ even when economy recovers

Deputy Governor John Murray reminds markets in an article published Thursday that there is no precise check list when it comes to monetary policy.

Deputy Governor John Murray reminds markets in an article published Thursday that there is no precise check list when it comes to monetary policy.

Monetary Policy according to the BoC is much different than predictions made by the OECD which estimates Bank of Canada may need to start hiking its trendsetting interest rate within the next year and steadily push it to 2.25 per cent by the end of 2015, according to an international think-tank representing the world’s leading economies.

Reblogged from The Financial Post, Reuters

OTTAWA — The Bank of Canada does not necessarily need to raise interest rates to “normal” levels even if the economy is running at full speed and inflation is close to the target level, Deputy Governor John Murray said in an article published on Thursday.

Murray addressed what he called five common misconceptions about Canadian monetary policy in the institution’s quarterly Bank of Canada review.

One such idea is the view that when inflation is nearing the central bank’s 2% inflation target and the economy is at full capacity, that benchmark rates should be “neutral,” a level much higher than the current 1%.

“Headwinds and tailwinds are often present, threatening to push economic activity and inflation higher or lower,” Murray wrote. “Monetary policy needs to lean against these forces with opposing pressure from higher or lower interest rates to stabilize the economy and keep inflation on target.”

The comment is a reminder to markets that there is no precise check list of factors the Bank of Canada needs to see before raising or cutting rates.

Read More … 146 more words

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Canadian housing starts climb, sparking fears market is overheating

Daniel Acker | Bloomberg

Daniel Acker | Bloomberg

Reblogged from The Financial Post, Reuters

TORONTO — Canadian housing starts rose more than expected in October and September starts were revised higher, according to data released on Friday that will add to fears the property sector could be overheating.

Data from the Canada Mortgage and Housing Corp showed the seasonally adjusted annualized rate of housing starts was 198,282 units last month, up from an upwardly revised 195,929 in September and surpassing analysts’ expectations for 190,800.

Multiple urban starts registered a slight increase of 0.9% to 115,011 units in October while the single urban starts segment saw a decrease of 1.7% to 62,423 units, the federal housing agency said.

“The trend in total housing starts has gained momentum since July, which is in line with expectations that new construction would strengthen over the second half of 2013,” Mathieu Laberge, deputy chief economist at CMHC said.

Canada’s housing market has rebounded in 2013 after a sharp slowdown in the second half of 2012 when the government tightened mortgage lending rules to prevent homebuyers from taking on too much debt.

Read More … 144 more words