Category Archives: Canada

Falling interest rates drive gains

From the ‘duh’ files: falling interest rates contribute to rising home prices.

A recent study points to yet another powerful, if-often-ignored, driver of home prices — falling interest rates.

Despite the recent, small interest-rate increase by the Bank of Canada, real mortgage interest rates have fallen precipitously since 2000. In 2000, typical mortgages were obtained at an interest rate of seven per cent. Last year, they averaged 2.7 per cent — almost two-thirds lower.

What has this meant for the purchasing power of Canadians?

Interest-rate declines reduce the amount that income borrowers must spend on interest payments, which gives them greater capacity to borrow with the same amount of income. Consider that the average Canadian family income was $50,785 in 2000 (including couples and singles). With mortgage rates at seven per cent, the maximum mortgage amount this family could secure was $180,949. At 2016 rates (2.7 per cent), the same family could borrow $276,610, an increase of 53 per cent.

Read the full article here.

New mortgage rules hit Genworth hard

New mortgage insurance rules are having an impact over at Genworth:

Genworth MI Canada Inc., which provides mortgage insurance for home buyers and financial institutions, said the total value of new insurance it wrote in the second quarter of 2017 was down 81 per cent to $6.1-billion from $31.7-billion in the same period last year.

Most of the decline was the result of a 96-per-cent drop in the value of portfolio insurance written in the quarter, which is bulk insurance bought by financial institutions for their portfolios of uninsured mortgages. New portfolio insurance fell to $1.1-billion from $25.9-billion in the second quarter last year.

Read the full article here.

We’re super-addicted to real estate fees

This is just kind of sad if it’s true, an analyst says that the associated fees for buying and selling real estate (commissions, taxes, legal costs and fees) make up a stunning 1.9% of GDP.

That’s more than agriculture, fishing, forestry and hunting combined.

Doyle points out that the U.S. was relying big time on home ownership transfer fees in 2005, when its real estate market peaked. But even then, those fees made up only about 1.5 per cent of U.S. GDP. Now, years after the U.S. housing market crash, transfer fees make up less than one per cent.

In Canada, upcoming data will likely show those fees have already started to fall, as the number of home sales across the country fell in June by the most in seven years.

Doyle says Canada’s increased reliance on real estate fees can be blamed on years of ultra-low interest rates, worsened during the oil price slump when the Bank of Canada cut rates even further.

“I think they felt that the lesser of two evils in that situation was to cut interest rates,” Doyle said.

But that fix has helped put Canada in another tricky situation, where the economy relies to an unusual extent on home transactions. That could have particularly negative consequences as the central bank begins to raise rates again.

“The drag on the economy that’s going to flow from [higher rates], I think, will prove to be much more severe than it’s been in the past,” Doyle said.

Read the full article here.

CMHC keeps crying ‘Wolf’

The Canadian Mortgage and Housing Corporation keeps on giving the national real estate market it’s worst possible rating. You can probably guess which cities get singled out as the most at risk:

CMHC’s valuation is part of its quarterly Housing Market Assessment, something the Crown corporation calls an early warning system, alerting Canadians to areas of concern developing in housing markets so that they may take action in a way that promotes market stability.

In terms of the 15 individual markets studied, CMHC said it saw strong evidence of overall problematic conditions in Victoria, Vancouver, Saskatoon, Hamilton and Toronto – the same five markets singled out a quarter ago.

CMHC defines problematic conditions as imbalances in the housing market that occur when overbuilding, overvaluation, overheating and price acceleration, or combinations of those issues exceed historical norms.

Read the full article here.

Sales slow, but what about prices?

An article over at the province says that real estate sales in Vancouver and Toronto have slowed, but don’t expect prices to follow:

“We’ll still have very lofty prices in Toronto and Vancouver. If we’re expecting the market to become instantly affordable that’s not going to happen. Given the low interest rates and rapid population inflow, they will still be expensive markets but we’re moving away, thankfully, from the days where there was incredible pressure for buyers to get in before prices grew another 40 per cent,” Bank of Montreal senior economist Douglas Porter said.

read the full article here.