Category Archives: economy

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.

Your car insurance is going up.

BC Drivers pay some of the highest car insurance rates in the country while receiving the lowest payouts, and yet somehow ICBC is out of money.

A recent report from Ernst & Young painted a dire picture at the Crown corporation, concluding that rates must increase by 30 per cent by 2019 to cover costs. A separate forecast released last November by ICBC indicated rates would need to increase by 42 per cent over the next five years to make up for expenses.

McCandless pointed to a footnote in the ICBC report that an additional $1.5 billion is required in “capital from other sources” between 2017 and 2020. He calculated the cumulative rate hike to be closer to 117 per cent over four years.

Continue reading Your car insurance is going up.

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.

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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.

CRA targets vancouver condo flippers

The Canada Revenue Agency is going after condo flippers for taxes due.  They are already taking developers to court for info an presales buyers who flipped contracts. Guess the taxman wants his cut of the boom.

In an emailed statement, Canada Revenue Agency (CRA) spokesman David Morgan explained the rationale behind the applications.

“In general, people who buy and resell homes in a short period for a profit may be engaged in property flipping. The CRA acquires and analyzes third-party data and uses this information to identify whether all income from property flipping is being reported correctly. The profits from flipping real estate are generally considered to be fully taxable as business income. The facts of each case determine whether such profits should be reported as business income or as a capital gain,” Morgan wrote.

Read the full article here.