Mortgage News

Mike Shafie

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December 09, 2020

Bank of Canada Confirms Commitment To Low Interest Rates

Despite the good news on the vaccine front since the Governing Council’s last meeting in late October, the Bank of Canada reasserted its commitment to provide extraordinary monetary policy support for many months to come. The statement released today reiterated that the Bank will hold the policy interest rate at its effective lower bound of 0.25% “until economic slack is absorbed so that the 2% inflation target is sustainably achieved.”  Although inflation in October picked up, it was mainly because of higher prices for fresh fruits and vegetables. The Bank’s policy statement said that measures of core inflation are all below 2%, and “considerable economic slack is expected to continue to weigh on inflation for some time.”  The economy will continue to require this stimulus until 2023–as stated in the most recent (October) Monetary Policy Report (MPR). 

The central bank will reassess the outlook when it meets again on January 20 when it releases the next full update of its outlook for the economy and inflation, including risks to the projection, in the January MPR. 

Oct 27, 2020

 

Bank of Canada sees interest rates on hold into 2023

 The Bank of Canada reinforced its commitment to keep interest rates at historic lows over the next few years, but said it will make a number of technical adjustments to its bond purchase program that should maintain the current level of stimulus.

In a policy statement Wednesday, officials led by Governor Tiff Macklem held the central bank’s overnight interest rate at 0.25 per cent, reiterating they will keep it there for years. In a surprise move, however, they pledged to pare back their purchases of government bonds to a minimum $4 billion a week, down from US$5 billion. They will also shift their asset purchases to long-term bonds, which typically is a more stimulative form of quantitative easing.

The net effect will be a wash, the Bank of Canada said. “The Governing Council judges that, with these combined adjustments, the QE program is providing at least as much monetary stimulus as before,” according to the statement.

The adjustment may seek to address concerns that the central bank’s asset purchase program is too large for the size of the nation’s outstanding bond market.

The Bank of Canada reiterated its commitment to keeping its overnight rate at near zero until economic slack is absorbed and the two per cent inflation target is sustainably achieved — something that it said isn’t forecast to take place until 2023. It also recommitted to purchasing bonds until the recovery is “well underway.”

Canada Has Recouped Two-Thirds Of Pandemic Job Losses

Sep 05, 2020

The August Labour Force Survey, released this morning by Statistics Canada, reflects labour market conditions as of the week of August 9 to 15, five months after the onset of the COVID-19 economic shutdown. By mid-August, public health restrictions had substantially eased across the country and more businesses and workplaces had re-opened.

Employment rebounded in August by 246,000 net new jobs, a slowdown from the 419,000 gain in July and June’s 953,000 rise. This slowdown was expected with the initial recovery boost from easing containment measures in the spring fading through the summer. 

The great news is that 84% of the headline jobs gain in August was in full-time positions. This follows the surge in part-time jobs in July. Full-time employment stood at 93.9% of pre-pandemic levels in August, compared with 96.1% for part-time work. In the months prior to the COVID-19 economic shutdown, full-time employment had reached record highs, while growth in part-time work was relatively flat. Compared with 12 months earlier, full-time employment was down 5.4% in August, while part-time work decreased by 5.1%. And an elevated share of those working part-time is doing so despite preferring full-time work. Hours worked increased more than employment in August–but are still down more relative to pre-shock February levels (-8.6%) than the headline employment count (-5.7%).

The August job growth brought employment to within 1.1 million of its pre-COVID February level, thereby recouping two-thirds of all the lost jobs.

The number of Canadians who were employed but worked less than half their usual hours for reasons likely related to COVID-19 fell by 259,000 (-14.6%) in August. Combined with declines in May, June and July, this left COVID-related absences from work at 713,000 (+88.3%) above February levels.

As of the week of August 9 to 15, the total number of Canadian workers affected by the COVID-19 economic shutdown stood at 1.8 million. In April, this number reached a peak of 5.5 million, including a 3.0 million drop in employment and a 2.5 million increase in COVID-related absences from work.

The number of Canadians working from home declined for the fourth consecutive month. In April, at the height of the COVID-19 economic shutdown, 3.4 million Canadians who worked their usual hours had adjusted to public health restrictions by beginning to work from home. This number has fallen each month since May when the gradual easing of public health restrictions began and reached 2.5 million in August.

Among Canadians who worked their usual hours in August, the total number working from home fell by nearly 300,000 compared with July, while the number working at locations other than home increased by almost 400,000.

July 23, 2020

Canadian retail sales have rebounded sharply after historic declines in March and April, with vendors making up almost all of their pandemic losses, Statistics Canada reported Tuesday.

Receipts rose 19 per cent in May, the agency said in its first full release for the month. June looks to have recorded another strong gain, with a flash estimate predicting another 25 per cent increase. That would bring sales last month to about 100 per cent of February levels, according to Bloomberg calculations.

The report confirms Canadian consumers are emerging from nationwide lockdowns with pent up demand and keen to spend. At issue is whether the sharp rebound will be sustained in coming months. Policy makers have warned a full rebound in consumer confidence could take years.

“At the moment, sales are still being buoyed by the enormous government income-support programs and consumers satisfying pent-up demand, both of which could fade in the second half of the year.

The Canadian dollar was little changed on the news, but was already trading higher on the day — up 0.7 per cent to $1.3437 per U.S. dollar at 12:32 p.m

BC Housing Markets Bounce Back in June

April 14, 2020

Vancouver, BC – July 14, 2020. The British Columbia Real Estate Association (BCREA) reports that a total of 8,166 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in June 2020, an increase of 16.9 per cent from June 2019. The average MLS® residential price in BC was $748,155, a 9.1 per cent increase from $685,968 recorded the previous year. Total sales dollar volume in June was $6.1 billion, a 27.5 per cent increase over 2019.

Record Gains in Canadian Home Sales and Listings in May

There was good news today on the housing front. Home sales surged by a record 56.9% in May from April’s unprecedented collapse. Data released this morning from the Canadian Real Estate Association (CREA) showed national home sales recovered roughly one-third of the COVID-induced loss between February and April (see chart below). On a year-over-year (y-o-y) basis, sales activity was still down almost 40%, but the jump in sales and an even larger surge in new listings shows pent-up demand remains for housing as buyers wish to take advantage of historically low mortgage rates.  

Transactions were up on a month-over-month (m-o-m) basis across the country. Among Canada’s largest markets, sales rose by 53% in the Greater Toronto Area (GTA), 92.3% in Montreal, 31.5% in Greater Vancouver, 20.5% in the Fraser Valley, 68.7% in Calgary, 46.5% in Edmonton, 45.6% in Winnipeg, 69.4% in Hamilton-Burlington and 30.5% in Ottawa. Not surprisingly, the cities with the smallest gains posted the smallest declines in prior months.

 

 

CMHC tightens mortgage rules amid downturn

  June 04, 2020 

Canada’s housing agency is tightening rules to make it more difficult for higher-risk borrowers to qualify for mortgage insurance.

As of July 1, homebuyers will need to have a higher credit score to qualify for default insurance, Canada Mortgage & Housing Corp. said Thursday in Ottawa. In addition, a borrower’s maximum gross debt service ratio — the share of income that goes toward paying all housing costs, including mortgage, taxes and heat — can’t exceed 35 per cent, down from 39 per cent previously.

The agency also said it would work to curb the practice of borrowing money for down payments. In addition, it suspended refinancing for multi-unit mortgage insurance except when the funds are used for repairs or reinvestment in housing.

CMHC expects prices to fall, and the agency doesn’t want new borrowers to get underwater on their mortgages, according to Rob McLister, founder of RateSpy.com, a mortgage comparison website that first reported the rule changes. However, the changes coming in the middle of the biggest ever economic contraction could hamper any recovery, he said.

“The biggest risk is the hit to market psychology due to the timing,” McLister said in an email. “Regulators usually make such changes when times are good, not when housing is teetering on the edge.”

 

Evan Siddall, CMHC’s chief executive officer, flagged the rule changes in May 19 testimony to lawmakers in which he said the combination of higher mortgage debt, declining property prices and increased unemployment is “cause for concern for Canada’s longer-term financial stability.”

What Are These Changes In Underwriting Policies

Effective July 1, the following changes will apply for new applications for homeowner transactional and portfolio mortgage insurance:

  • The maximum gross debt service (GDS) ratio drops from 39 to 35
  • The maximum total debt service (TDS) ratio drops from 44 to 42
  • The minimum credit score rises from 600 to 680 for at least one borrower
  • Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes

Bank of Canada cut rates

The Bank of Canada today lowered its target for the overnight rate by 50 basis points to ¼ percent. This unscheduled rate decision brings the policy rate to its effective lower bound and is intended to provide support to the Canadian financial system and the economy during the COVID-19 pandemic (see chart below).

Strains in the commercial paper and government securities markets triggered today’s action to engage in quantitative easing. The Governing Council has been meeting every day during the pandemic crisis. Market illiquidity is a significant problem and one the Bank considers foundational. These large-scale purchases of financial assets are intended to improve the functioning of financial markets.

Credit risk spreads have widened sharply in recent days. People are moving to cash. Liquidity has dried up in all financial markets, even government-guaranteed markets such as Canadian Mortgage-Backed securities (CMBs) and GoC bills and bonds. The commercial paper market–used by businesses for short-term financing–has become nonfunctional. The Bank is making large-scale purchases of financial assets in illiquid markets to improve market functioning across the yield curve. They are not attempting to change the shape of the curve for now but might do so in the future.

These large-scale purchases will create the liquidity that the financial system is demanding so that financial intermediation can function. Risk has risen, which creates the need for more significant cash injections.

At the press conference today, Senior Deputy Governor Wilkins refrained from speculating what other measures the Bank might take in the future. When asked, “Where is the bottom?” She responded, “That depends on the resolution of the Covid-19 health issues.”

The Bank will discuss the economic outlook in its Monetary Policy Report at their regularly scheduled meeting on April 15. In response to questions, Governor Poloz said it is challenging to assess what the impact of the shutdown of the economy will be. A negative cycle of pessimism is clearly in place. The Bank’s rate cuts help to reduce monthly payments on floating rate debt. He is hoping to maintain consumer confidence and expectations of a return to normalcy.

The oil price cut alone would have been sufficient reason for the Bank of Canada to lower interest rates. The Covid-19 medical emergency and the shutdown dramatically exacerbates the situation. All that monetary policy can do is to cushion the blow and avoid structural problems to the economy. The overnight rate of 0.25% is consistent with market rates along the yield curve.

High household debt levels have historically been a concern. Monetary policy easing helps to bridge the gap until the health concerns are resolved. The housing market, according to Wilkins, is no longer a concern for excessive borrowing by cash-strapped households.

At this point, the Bank is not contemplating negative interest rates. Monetary policy has little further room to maneuver, given interest rates are already very low. With businesses closed, lower interest rates do not encourage consumers to go out and spend money.

Large-scale debt purchases by the Bank will continue for an extended period to provide liquidity. The Bank can do this in virtually unlimited quantities as needed. The policymakers are also focussing on the period after the crisis. They want the economy to have an excellent foundation for growth when the economy resumes its normal functioning.

Fiscal stimulus is crucial at this time. The newly introduced income support for people who are not covered by the Employment Insurance system is a particularly important safety net for the economy. There are many other elements of the fiscal stimulus, and the government stands ready to do more as needed.

The Canadian dollar has moved down on the Bank’s latest emergency action. The loonie has also been battered by the dramatic decline in oil prices. Canada is getting a double whammy from the pandemic and the oil price war between Saudi Arabia and Russia. The loonie’s decline feeds through to rising prices of imports. However, the pandemic has disrupted trade and imports have fallen.

The Bank of Canada suggested as well that they are meeting twice a week with the leadership of the Big-Six Banks. The cost of funds for the banks has risen sharply. CMHC is buying large volumes of mortgages from the banks, which, along with CMB purchases by the central bank, will shore up liquidity. The banks are well-capitalized and robust. The level of collaboration between the Bank of Canada and the Big Six is very high.

Home sale activity up, supply down to start 2020

Home sale and price activity remained steady in Metro Vancouver to start 2020 while home listing activity declined in January.

The Real Estate Board of Greater Vancouver (REBGV) reports that residential home sales in the region totalled 1,571 in January 2020, a 42.4 per cent increase from the 1,103 sales recorded in January 2019, and a 22.1 per cent decrease from the 2,016 homes sold in December 2019.

Last month’s sales were 7.3 per cent below the 10-year January sales average.

“We’ve begun 2020 with steady home buyer demand that tracks close to the region’s long-term average,” Ashley Smith, REBGV president said. “Looking at supply, we’re seeing fewer homes listed for sale than is typical for this time of year. As we approach the traditionally more active spring market, we’ll keep a close eye on supply to see if the number of homes being listed is keeping pace with demand.”

There were 3,872 detached, attached and apartment properties newly listed for sale on the Multiple Listing Service® (MLS®) in Metro Vancouver in January 2020. This represents a 20.1 per cent decrease compared to the 4,848 homes listed in January 2019 and a 143.8 per cent increase compared to December 2019 when 1,588 homes were listed.

Last month’s new listings were 17.4 per cent below January’s 10-year average.The total number of homes currently listed for sale on the MLS® system in Metro Vancouver is 8,617, a 20.3 per cent decrease compared to January 2019 (10,808) and a 0.2 per cent increase compared to December 2019 (8,603), and is 13.7 per cent below the 10-year January average.

For all property types, the sales-to-active listings ratio for January 2020 is 18.2 per cent. By property type, the ratio is 11.6 per cent for detached homes, 22.6 per cent for townhomes, and 23.9 per cent for apartments.

Generally, analysts say downward pressure on home prices occurs when the ratio dips below 12 per cent for a sustained period, while home prices often experience upward pressure when it surpasses 20 per cent over several months.

The MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver is currently $1,008,700. This represents a 1.2 per cent decrease over January 2019, a 1.4 per cent increase over the past six months, and a 0.8 per cent increase compared to December 2019.

Sales of detached homes in January 2020 reached 439, a 29.5 per cent increase from the 339 detached sales recorded in January 2019. The benchmark price for detached properties is $1,431,200. This represents a 1.7 per cent decrease from January 2019, a one per cent increase over the past six months, and a 0.5 per cent increase compared to December 2019.

Sales of apartment homes reached 814 in January 2020, a 45.6 per cent increase compared to the 559 sales in January 2019. The benchmark price of an apartment property is $663,200. This represents a one per cent decrease from January 2019, a 1.5 per cent increase over the past six months, and a one per cent increase compared to December 2019.

Attached home sales in January 2020 totalled 318, a 55.1 per cent increase compared to the 205 sales in January 2019. The benchmark price of an attached unit is $782,500. This represents a 0.7 per cent decrease from January 2019, a 1.6 per cent increase over the past six months, and a 0.5 per cent increase compared to December 2019.

 
Jan 22, 2020
Bank of Canada keeps rates on hold, trims growth forecast for 2020

The Bank of Canada held interest rates steady at a meeting Wednesday but expressed heightened concern about an economy that has slowed more than expected, suggesting officials are becoming less confident in a year-long holding pattern.

While the Ottawa-based central bank kept its policy rate unchanged at 1.75 per cent for a 10th-straight decision, it acknowledged the domestic weakness at the end of last year is already spilling over into 2020, and could even persist. They also raised estimates of slack in the economy and dropped language about the current rate being appropriate.

The comments are a departure from recent communications in which officials sought to accentuate the positives of an economy they said was resilient in the face of global uncertainty. While Wednesday’s decision still leaves the Bank of Canada with the highest policy rate among major advanced economies, markets may interpret the statement as an attempt to at the very least open the door for a future move.

“In determining the future path for the Bank’s policy interest rate, Governing Council will be watching closely to see if the recent slowdown in growth is more persistent than forecast,” policy makers led by Governor Stephen Poloz said in the statement. “In assessing incoming data, the Bank will be paying particular attention to developments in consumer spending, the housing market, and business investment.”

 

 

Jan 10, 2020

Metro Vancouver saw record levels of housing starts in 2019, suggesting the market is “finding its footing” after a period of declining sales and falling prices, according to reports Thursday.

Canada Mortgage and Housing (CMHC) reported that Metro saw developers start construction on 28,141 new homes in 2019, up 20 per cent from 2018, with a substantial number of those, some 6,727, purpose-built rental units.

The CMHC report came out on the same day that Royal LePage released its latest house-price survey showing that aggregate home prices across the region declined 4.8 per cent in the fourth quarter of 2019 but in a market showing signs of recovering sales.

Royal LePage found that the condo markets in West Vancouver and North Vancouver were the only segments to see prices rise in the fourth quarter, by 6.3 per cent and 3.3 per cent, respectively.

And it was condo housing starts across the region that saw the biggest boost in construction, albeit with a “recalibration” of pricing levels, according to CMHC analyst Eric Bond.

“There is demand, strong demand for homes in price ranges that can be reasonably purchased by people based on their local incomes,” Bond said. “That’s where sales have been the strongest. The market is finding its footing again and developers are taking that longer-term view that, ‘I’m building for 2021, 2022.’ ”

And the record starts for 2019, which Bond said exceed the last record set in 2016 by about 200 units, brought the total number of housing units under construction in Metro to 46,000, another record.

“What that means is everyone is busy building,” Bond said, leading to constraints on the availability of materials, equipment and labour for building, which will help keep a lid on growth in housing starts over the next two years.

However, the sheer number of homes being completed over the coming years, particularly condos, might also bring an additional dampening effect to either prices or rents, according to University of B.C. academic Tom Davidoff.

“I think completions (of units) are very good for the resale market and the rental market,” said Davidoff, director of the UBC centre for urban economics and real estate at the Sauder School of Business. “A lot of the buyers are investors, so I think we’ve seen a slowdown at least in the rate of growth in rents in the last year.”

However, the news of increased construction comes at the same time that sales have increased in the market for existing homes, which has others estimating the prices have at least stopped declining. Royal LePage tracked declining prices across Metro in the last three months of 2019 with the median price of a standard two-storey home falling 4.7 per cent to $1.4 million. The median price on condos fell six per cent to $645,607 over the same period.

Inventories are also declining at the same time that sales have increased, said Randy Ryalls, general manager of Royal LePage Sterling Realty in Port Moody, which is “a good sign of recovery on the horizon.”

“I think the correction is over,” Ryalls said. “I don’t see anything lining up to say that prices are going to fall.”

At the same time, the dramatic decreases in property prices have happened more at the high end of the market among homes priced over $2 million. Townhouses in the suburbs that were priced in the $700,000-$800,000 range, however, didn’t see corrections as steep.

“I don’t think anybody would look at Vancouver’s market and say, ‘Oh, OK, it’s affordable now,’ ” Ryalls said.

Davidoff said some people hoped that the market downturn, influenced by the federal mortgage stress test and provincial foreign-buyers tax would help make Metro’s market more affordable.

“I think we’ve learned that just getting rid of outside demand is not going to get us all the way to affordability,” Davidoff said.

Dec 10, 2019

The B.C. government has announced it is raising the Speculation and Vacancy Tax on Dec. 31 from 0.5 per cent to two per cent for foreign owners and for satellite families, the majority of whose income is not reported on a Canadian tax return.

Some new exemptions to the tax will be brought in while others currently in place will be phased out.

“When we introduced the Speculation and Vacancy Tax, our province was at the peak of a real estate crisis and moderation in the market was long overdue,” said Finance Minister Carole James.

Based on the data collected from the first year, the government says the tax is working as it was designed to — capturing speculators, foreign owners and people who own vacant homes.

The next phase of the tax brings:

  •  An exemption for property owners who are members of the Canadian Armed Forces while in active service and their spouses.

  • An exemption for people who own properties which are only accessible by water. 

  • An end on Dec. 31, 2019, to the exemption for foreign owners of vacant land.

The exemption for empty strata properties in buildings where rentals are banned will be phased out by Dec. 31, 2021.

A strata title allows individual ownership of part of a property — generally either an apartment or townhouse — with shared ownership in the remainder of the building.

Under the new rules announced Tuesday,  if the strata lot remains unoccupied, even if the building’s bylaws prohibit rentals, the tax will be levied.