About two-thirds of first-time buyers say they’ll purchase a home as planned and are unaffected by new mortgage rules brought in by Ottawa a year ago, says a new survey.

 

The findings come as the banks continue to increase long-term interest rates in the face of rising bond yields but refuse to bump up the posted rate for a five-year, fixed-rate closed mortgage – a key measure in deciding how much a consumer can borrow after the new rules were introduced.

 

Rates on the five-year mortgage have been rising steadily since the beginning of May in response to bond yields. At one point the Bank of Montreal offered a five-year, fixed-rate closed mortgage for as little as 2.99%, but that’s now up to 3.59%.

 

Meanwhile the posted rate has stayed at 5.14% at most banks. That posted rate is used by Ottawa to establish what is called the qualifying rate for consumers who require mortgage default insurance. Consumers not locking in for five years or more face the qualifying rate but, since it hasn’t risen, they can borrow as much as ever.

 

Click here for the full Financial Post article.

 

Canadian housing starts were stronger than expected in June and May figures were revised higher, according to data released yesterday – the latest report to show the property market rebounding from last year’s government-induced slowdown.

 

The seasonally adjusted annualized rate of housing starts was 199,586 units in June, according to data from the Canadian government’s housing agency. Analysts polled by Reuters had expected 187,000 starts in June.

 

CMHC also revised May starts higher, to 204,616 from the 200,178 originally reported.

 

The stronger-than-expected numbers helped boost the Canadian dollar in early trading.

 

Click here for more from the Financial Post.

 

Opaque contracts. Stiff penalties. Unnecessary insurance fees. Mortgage documents are full of traps that make it extremely difficult to pay off your biggest debt.

 

Click here for tips from MoneySense to pay off your mortgage early and become debt-free sooner than you imagined.

About two-thirds of first-time buyers say they’ll purchase a home as planned and are unaffected by new mortgage rules brought in by Ottawa a year ago, says a new survey.

The findings come as the banks continue to increase long-term interest rates in the face of rising bond yields but refuse to bump up the posted rate for a five-year, fixed rate closed mortgage — a key measure in deciding how much a consumer can borrow after the new rules were introduced.

Rates on the five-year mortgage have been rising steadily since the beginning of May in response to bond yields. At one point the Bank of Montreal offered a five-year, fixed rate closed mortgage for as little as 2.99% but that’s now up to 3.59%.

Meanwhile the posted rate has stayed at 5.14% at most banks. That posted rate is used by Ottawa to establish what is called the qualifying rate. Consumers not locking in for five years or more face the qualifying rate but since it has hasn’t risen they can borrow as much as ever.

A department of finance spokeswoman noted the five-year is set by the Bank of Canada and is based on the posted rates at Canada’s largest banks.

“The Government continues to monitor the mortgage market and protect taxpayers,” said Stéphanie Rubec manager, media relations, via email. “Prices for financial products, including mortgage interest rates, reflect a financial institution’s business decisions. Due to the fact that taxpayers are the ultimate backstop for government-backed insured mortgages, financial institutions are expected to lend prudently.” 

Farhaneh Haque, director of mortgage advice and real estate-secured lending at Toronto-Dominion Bank, said for most consumers it hasn’t had an impact because the majority of mortgages are for longer than five years — meaning consumers can use the lower rate on their contracts to qualify.

“The profile for our customers is the longer term anyway so it hasn’t had a material impact,” said Ms. Haque.

The Bank of Montreal survey, conducted by Pollara, found on the one year anniversary of the latest mortgage rule changes 66% of Canadians buying for the first-time will do so as planned.

Among the other changes was shortening of amortization lengths from 30 years to 25 years. The survey found 14% of Canadians will buy sooner, partially out of fear rules could get even tougher.

Meanwhile there is very little to indicate the posted rate will be rising any time soon, despite the fact government of Canada five-year bond has risen about 65 basis points since May 1.

“You do have to remember when rates where at all-time lows they didn’t lower the qualifying rate either,” said Rob McLister, editor of canadianmortgagetrends.com. “I have never talked to a banker or lender who has openly admitted they are keeping the rates low to qualify more people.”

He says it’s mostly a practical issue for qualification because very few people actually take the posted rate. Mr. McLister said some lenders like to keep it low to appear more competitive.

But there is no question the qualification rate will have to rise if bond yields keep rising. Plus, rising long-term rates might send people back to cheaper variable rate products, creating a more urgent need to tighten loan requirements.

“Once you get a one percentage point gap between short-term and long term, people start looking at variable,” said Mr. McLister.

David Madani, an economist for Capital Economics, agrees it is just a matter of time before the qualifying rate and posted rates start to jump. “There is usually a bit of a lag,” said Mr. Madani.

One bank economist, who asked not to be named, said there is a caution at the banks right now about the bond market. “They want to know that these rates are here to stay,” said the economist.

Canadians accustomed to cheap money are quickly realizing that the era of rock-bottom rates could soon be coming to a close.

 

Since the worst of the financial crisis, government interest rates in Canada and the United States have remained exceptionally low, and for the past three years government bond yields have kept falling to shocking depths, with the five-year Government of Canada bond dropping once again to below 1.2 per cent in early May.

 

Since then, however, there’s been a sudden turn.

Although the upswing in yields was anticipated, the feverish pace of this rise wasn’t. Since the beginning of May, the yield on 10-year U.S. Treasuries has spiked roughly 60 basis points, or 0.6 per cent, to hit 2.5 per cent, their highest rate since August, 2011. (A basis point is 1/100th of a percentage point.)

 

These yields affect many parts of the economy, from residential mortgage rates to the values of Canadians’ pensions. The sudden jump has caught many off guard. In the past month Royal Bank of Canada has already raised mortgage rates twice.

 

Bond yields began rising in early May when U.S. jobs numbers came in much better than expected, and then they shot up this week after U.S. Federal Reserve chairman Ben Bernanke suggested the central bank could start tapering its asset-buying program, under which the central bank now scoops up $85-billion (U.S.) of bonds and securities each month to keep their yields low.

Now interest rates on Canadian bonds are following suit because international investors largely view U.S. and Canadian bonds as alternatives to one another.

This is “uncharted territory,” said Toronto-Dominion Bank chief economist Craig Alexander.

“We’ve never been in a world where the Federal Reserve is buying $85-billion of bonds a month, and now the government is going to start scaling that back.”

As investors navigate the choppy waters, the question now, he said, is whether the recent spike in rates will hold. “Do they continue to climb, or does the market take a pause and recognize that it went too far too quickly?”

Whatever the outcome, uncertainty is weighing on everyone from small businesses to pensioners, who wonder how the market will shake out.

The Bank of Canada’s key interest rate isn’t expected to jump higher than its 1-per-cent level for some time, but government bond yields are at the whim of the market, and these yields are the benchmarks from which so many other products are priced.

Mortgage Rates

Royal Bank of Canada, the country’s biggest mortgage lender, has boosted its five-year rates for fixed-rate mortgages twice in the last two weeks to 3.49 per cent, and has also raised rates on mortgages of other lengths. Rival banks are following suit. These hikes follow a period during which rates sank to new lows, luring more people into the housing market. Such low rates prompted Finance Minister Jim Flaherty to lecture banks at a time of high consumer debt and house prices. Now the market is doing his work for him.

Personal savings

Canadians nearing retirement have had few choices for quality, dependable investments over the past few years – something they need at such a vulnerable point in their lives. Rock-solid 10-year federal government bonds that paid north of 4 per cent before the crisis offered returns less than half that amount until early May, and the banks’ super safe guaranteed investment certificates (GICs) barely offered more than the paltry inflation rate. That’s quickly changing as bond yields rise, widening investment options for baby boomers.

Business borrowing

The rates at which businesses of all sizes, from family-run restaurants to major corporations, can borrow money are quickly escalating. These rates are priced off soaring underlying government bond yields, which means the banks and the end borrowers have little control over them. However, the upside is that higher rates make the loans more economical for the banks, because they earn better margins on them. That means the banks should be more willing to lend money out – provided businesses have good reason to borrow.

Pensions

Low interest rates have caused serious pain for defined-benefit pension plans, and rising rates should be good news for people who are counting on payments from such plans in retirement. Pension accounting rules require plans to calculate a discount rate that determines whether they have enough money to fund their pension liability. This rate is priced off of bond yields, and higher yields translate into higher discount rates, making pension plans more solvent.

CMP magazine is holding its sixth annual review of Canada’s Top 75 Brokers for 2012 funded mortgage volume, giving residential brokers the chance to win the top spots based on individual volumes.

 

In addition to the CMP Top 75, this year marks the second year of the Small Market Top 20 – a list celebrating the accomplishments of mortgage professionals in markets with 2012 average home prices of $290,000 or less.

 

The entry deadline is Friday, June 21st, so don’t delay!

 

Last year’s Top 75 list included funded volumes (from 2011) ranging from just over $26 million in 75th position to more than $410 million in top spot. If your funded volume for 2012 is above $25 million, it’s definitely worth your while to fill out the submission form.

 

Please note that your volume submission must only include deals you personally generated and for which you alone received commission. It’s okay if someone else helped you process the deals, but no one else should have been paid commission on these deals.

 

Click here to enter online today.

 

When it comes to the purchase of a home, most Canadians admit to making some mistakes, according to the 20th Annual RBC Homeownership Poll conducted by Ipsos Reid.

 

The majority (60%) of Canadian homeowners indicate they’ve made some kind of mistake when buying a home, compared to two in five (40%) who say they haven’t.

 

Asked to list up to three mistakes, Canadian homeowners include the need for significant renovations (15%), not having a bigger down payment (14%), and not getting a home inspection (13%).

 

A further one in 10 list purchasing too quickly (11%), failing to account for extra costs or total cost of homeownership (10%), making compromises to budget and lifestyle (9%), making an emotional purchase and paying too much (8%), not thinking about future family and space needs (8%), or waiting too long to buy (8%).

 

Click here to read more of the RBC press release.

 

This spring homeowners are feeling optimistic about taking a bite out of their mortgage without having to cut back in other areas of their lives.

 

According to Scotiabank’s Mortgage Landscape Study, nearly two-thirds of mortgage holders (67%) agree that it’s possible to pay off their mortgage faster without impacting their lifestyle. In fact, most mortgage holders (59%) say they believe adding $20 per month to their mortgage payment would have no impact on their finances.

 

“Sometimes when people think about speeding up their mortgage payments, they get into the mindset that their only option is to make a large lump-sum payment in order to make a real dent,” said David Stafford, Managing Director of Real Estate Secured Lending at Scotiabank. “While periodic lump sums and even switching to bi-weekly payments are great options, increasing your payments by small amounts, like $20 per month, can have an incredible impact over the years. This small amount translates into paying off your mortgage years sooner, and every dollar that you don’t have to pay interest on for a 20- or 30-year mortgage can add up to real savings.”

 

When asked if they own or rent their primary residence, 35% of Canadians own with a mortgage, 29% own without a mortgage, 32% say they rent and 4% listed ‘other’ as their answer. Of those with a mortgage, half (51%) say they have spoken to their mortgage provider about how they can become mortgage-free faster.

 

Most mortgage holders (79%) have taken at least one step to pay off their mortgage faster. The top steps Canadians have taken to say goodbye to their mortgage faster include increasing the frequency of regular payments (45%), renegotiating for a lower mortgage rate (29%), increasing amount of regular payments (26%) and making additional payments (26%).

 

Click here for the full Scotiabank press release.

 

There’s been a surge of ‘Best Rate’ sites popping up. Chances are, you’ve probably seen one or more of their online ads. You know the ones…‘shopping’ for the Best mortgage rates in Canada’ and ‘comparing Canada’s mortgage brokers for the best rate”. It does sound great, and it seems to be getting lots of attention. Even the media are covering and quoting these sites. And although I like that these sites promote how Mortgage Brokers can offer great rates, I’ve noticed some disturbing trends that you need to watch out for.

 

You say you want the ‘best rate’? Really? Or do you want to pay the least amount of money on your mortgage? I’ll bet it’s the latter. Make no mistake, these two things are very different and I’ll prove it. But let’s face it, the rate gets everyone’s attention. Most people don’t want to hear anything beyond that… until they get burned for $$thousands on the mortgage later on.

 

Now what if I told you that 80% of my clients were paying a rate of 1.35% during 2009 and 2010, would that get your attention? Of course. And it’s true. 80% of my clients were in a Variable Rate mortgage based on my recommendations… and almost all of them didn’t panic and lock into a fixed rate (like the BIG SIX BANKS wanted them to). They stayed in those products based on my specific advice recommending they not lock into a Fixed rate. That’s called being in the right product at the right time. My average client saved $6,000 during that time.

 

Today, Fixed rates have our attention due to the rates being at all-time record lows. So, once again, I’m seeing consumers flock to the Internet to see who’s got the ‘Best Rate’. Hey, the strategy hasn’t changed. We still want to be in the right product at the right time. But the products have become more complicated and we’re seeing some poor product recommendations.

 

It’s time to put these sites to the test. Click here for the results followed by some recommendations after two months of research courtesy of an Ontario-based broker.

 

When she tours homes in the neighbourhood west of Eglinton and Bathurst in Toronto, Lindsey Springer knows exactly what she’s looking for: three bedrooms; finished basement; and easy access to transit.

 

“Definitely accessibility to the TTC is really important. My husband takes the TTC to work every day so that’s really important,” she says.

The suburbs don’t suit her lifestyle but finding a home close to existing transit is proving hard. “More expensive, definitely multiple offer situations, and we wish they were more affordable.”

 

The problem she’s facing is a common one. Homes and condos in denser, walkable and transit-friendly neighbourhoods come at a price often out of the reach of young families.

 

Making those neighbourhoods more affordable for people like Springer is the idea behind location efficient mortgages (LEM). The LEM idea is based on the premise of encouraging people to use public transportation and getting away from a lot of the congestion common with cars in big cities.

 

Click here for the full CBC News story.

 

Gift letters are often required by mortgage companies when parents are helping children buy a home. Mortgage companies want to see that the down payment either comes from the borrowers’ own resources or has been gifted.

 

In a case decided in April, a father had made a gift of $83,500 on the purchase of property by his son and daughter in-law. Later, the son and daughter in-law divorced. In the legal action to divide the matrimonial property, the father said that the gift was intended solely as a gift to his son. Alternatively, he told the Court that it should be treated as a loan. Otherwise, the wife stood to receive $41,750 – one half of the gift – on dissolution of the marriage.

 

In this case, the Alberta Court of Queen’s Bench agreed with the wife. They treated the $83,500 down payment from the husband’s father as a gift to both the husband and wife and, therefore, the wife got her $41,750. But the Court decision leaves it open to specify that a gift is to one child only.

 

So your clients may want to be very precise when they do a gift letter, and may want to keep a copy for future use.

 

Click here to read more about this court case from the Calgary Real Estate Review.

 

First-time homebuyers shopping for a mortgage have all the technology at their fingertips to make informed decisions, and financial experts say those resources should arm them with enough knowledge to prepare themselves, and even negotiate a better rate.

 

“In today’s environment, with so many things on the Internet, social media in general, there’s no reason why people shouldn’t be doing a lot more research,” said Jim Murphy, President and CEO of the Canadian Association of Accredited Mortgage Professionals.

 

One of the biggest challenges can be finding a starting point. Begin by taking a hard look at your financial goals and then match them with the many features and functions a mortgage has to offer.

 

Murphy suggested visiting CAAMP’s website for the basics on mortgage shopping. CAAMP is the national organization representing Canada’s mortgage industry, with more than 12,250 mortgage professionals representing over 1,700 companies.

 

Click here to read more from the Globe and Mail.

The Conservatives’ 2013 federal budget includes a job training grant, the elimination of CIDA, help for manufacturers and tariff cuts on sports equipment. Here are the key highlights.

Spending restraint

Finance Minister Jim Flaherty proudly noted the budget “contains the smallest increase in discretionary spending in nearly 20 years.” He also said, however, that money transferred to provinces and individuals will not be reduced.

Job training

The key feature of the Conservatives’ budget is the Canada Job Grant. According the budget, the grant “could provide $15,000 or more per person” for short-term training. Only $5,000 would be contributed by the federal government, with matching contributions coming from provinces and employers.

No more CIDA

In what the government calls “international synergy,” the Canadian International Development Agency, which performs essential aid work in developing countries, will be swallowed up by the Department of Foreign Affairs and International Trade. The new entity will be called the Department of Foreign Affairs, Trade and Development. The government says it “will continue to serve the same functions as the old departments.

Help for manufacturers

Manufacturers are among the winners in the budget, with tax relief of $1.4 billion over four years for buying new machinery and equipment.

Cheaper skates?

Tariffs will be reduced on items including baby clothing and sports equipment such as ice skates and golf clubs. It remains to be seen whether the cuts will translate to lower prices for consumers.

Closing tax loopholes

The government will eliminate “unintended tax benefits” that allow some to avoid tax by doing such things as moving money offshore. The measures include paying people who provide information about tax avoiders.

More highlights from the 2013 federal budget:

Ottawa is axing deduction that allows Canadians to claim the cost of renting a safety deposit box. Taxpayers who have investment income have typically been allowed to deduct the cost of safety deposit boxes used to store and protect papers related to that portfolio. But that deduction ends with the 2013 budget.

Commercial parking supplied by municipality, hospital, university, college or school will be subject to the Goods and Services Tax.

Rideau Hall will begin paying the GST and HST on purchases for use by the Governor General. While Governor General David Johnston voluntarily pays the tax on his personal purchases, Rideau Hall has been exempt.

Other key figures from the budget include:

$253 million over five years for affordable housing.

$44 million over two years to improve processing of citizenship applications and another $42 million over two years to enhance processing of temporary resident applications.

$8 million towards the restoration of Toronto’s Massey Hall.

$920 million over five years to renew the federal economic development agency for southern Ontario. Formed in 2009, the agency has funded 341 projects in the region. As well, the budget commits another $200 million for a new “advanced manufacturing fund” to be managed by the agency, to encourage corporate investments in new products or production methods.

$248 million over five years for better weather forecasting. The cash will enable Environment Canada to invest in radars and climate monitoring stations to produce “more timely, accurate weather warnings and forecasts.”

 

Canada’s housing market is a bubble about to burst in some cities, or in the midst of a soft landing. Either way, a crucial piece of information on just what’s driving the market is missing in action.

Unlike in other countries such as the United States and Australia, neither the Canadian federal government nor industry keeps track of the numbers of foreign buyers or where they come from. Anecdotal evidence about foreign buyers abounds, yet hard evidence is lacking.

It’s a crucial bit of missing information. Understanding what’s sparking demand in real estate can offer insights into the health of the market and what’s driving prices, and to better predict cycles – by knowing, for example, how a slowdown in China’s economy might affect local markets.

It can also help politicians make wiser decisions about the sector, such as whether restrictions may be needed if speculation becomes too high.

“It’s very hard to have a policy debate about what we should do when we don’t really know what’s going on,” said Tsur Somerville, director of the University of British Columbia’s centre for urban economics and real estate.

On a quiet leafy street north of Toronto, Mr. Zhang – who asked that his full name not be used – taps the walls and inspects the furnace of a $2.68-million home.

He’s got five days in the city to make his decision. This five-bedroom house, with Jatoba cherry wood floors and a home theatre, is a little over his $2-million budget, but he’ll see half a dozen others this week before making a selection.

He’s looking to buy because his 15-year-old daughter will be attending private school in Canada later this year. The owner of a steel business in Beijing has applied to immigrate to Canada, and figures he may as well purchase a home now.

“Canada is a beautiful country. It is good for living, for higher education and it is not that populated,” said Mr. Zhang, who ultimately bought a $2.2-million home in Oakville, Ont.

Rumours are rife about foreign buyers. In Toronto, Russian and Iranian buyers, flush with cash, are snapping up condos. In Vancouver, Chinese investors are buying luxury apartments. In the Maritimes, wealthy Americans and Europeans are acquiring coastal vacation property.

Estimates of the level of foreign buying are all over the map. In the Toronto and Vancouver markets, they can range from 3 per cent to – in some pockets of the condo market – upward of 60 per cent.

Debate percolated last year about whether Canada should place restrictions or slap fees on non-residents who buy property in the country. But “we definitely had policy recommendations in advance of knowledge,” Mr. Somerville said.

Published stats would help analyze ebbs and flows of demand, occupied units versus vacant ones, and the dynamics of over-supply – how foreigners factor in to the equation of household formation to new construction.

Shifts in the housing market can have huge spillover effects on the broader economy, on everything from retail sales to employment and the building of new shopping malls.

And yet, “we’re missing quite a meaningful part of housing activity in this country,” said Sherry Cooper, chief economist at Bank of Montreal.

Canada’s housing market has boomed since the recession, until lately. Without knowledge of the source of buying, Ms. Cooper said, “we have difficulty assessing just how sticky this money is, how vulnerable we might be to international capital flow changes, or what are the fundamentals that determine what has been extraordinary building and buying in our major cities.”

Canadians, meanwhile, are flocking to the U.S. market, snapping up holiday homes in the sun. They are now, by far, the biggest bunch of foreign buyers of American real estate.

Just how do we know this? Each year, the National Association of Realtors publishes a study on international buying activity in the U.S. It shows who the biggest buyers are, the fastest-growing nationalities of buyers (Canada, China), where they’re buying (Florida, California), why (bargain vacation homes!) and how levels of foreign buying change from year to year.

The industry has collected this info for more than five years, gleaned from questionnaires and followup emails to 50,000 real-estate agents. It’s valuable information for the public, government officials – and the industry itself, helping realtors better understand their markets, says Jed Smith, the association’s Washington-based economist.

Australia, for its part, tightened its rules in 2010 to ensure that investment in its market by foreign non-residents “doesn’t place pressure on housing availability for Australians.”

In London, U.K. property broker Savills asks its clients about their nationality and why they’re buying. Its latest report shows foreigners now comprise a third of buyers of prime residential properties, up from a quarter in 2007. It also found the biggest buyers are Western Europeans.

It’s a contrast to Canada. CMHC does not monitor or compile data on foreign investors. Its mortgage loan insurance isn’t available for foreign buyers, meaning someone outside the country would need a down payment of at least 20 per cent, and have to get conventional financing . The Canadian Bankers Association doesn’t keep data on this. Nor does the Canadian Real Estate Association. The Bank of Canada doesn’t track it, though Governor Mark Carney has noted that heavy investor demand – much of it foreign – “reinforces the possibility of an overshoot in the condo market in some major cities.”

He has implied that the bank could compile data if it chose to. “We have, through partners, access to all mortgage insurance transactions and all real estate, effectively all real estate transactions, the residency of those transactions, and we can do deeper drills in various areas, if we wish, to establish that.”

As for the federal government, Finance Minister Jim Flaherty told The Globe and Mail last April that it doesn’t have a good handle on the amount of foreign money in the country’s housing market. “It’s mainly anecdotal, so I don’t have a statistical grasp of it, no,” he said, adding that he hears about lots of people in emerging economies paying cash for condos in Toronto and Vancouver .

Monitoring foreign buying in Canada poses challenges. Some buyers purchase homes through local family or a lawyer’s office, so on paper they appear to be living in the country. Plus there may be privacy concerns around asking buyers where they come from or why they’re buying.

Still, Lawrence Kobescak, mortgage agent at Ontario Mortgage Superstore.com, is among many who’d like more clarity on the trends. “Without a clear picture of foreign ownership in the residential market in Canada, we cannot predict the impact shifting foreign investor sentiment may have on the Canadian housing market,” he said.

For example, it’s tough to gauge whether Canada’s hot market since 2008 partly stemmed from a flight to security by foreign investors. Conversely, a global recovery could spur interest rate hikes, put the squeeze among foreign investors’ returns and cause them to retrench. “Without accurate statistics of foreign ownership of residential properties in 2008 and in 2012, we would only be guessing.”

International interest in Canadian property is unlikely to abate any time soon. Volatile stock markets and Canada’s reputation for economic stability are luring investors. So are housing prices that are still lower than other major global centres. And, unlike many countries such as Australia and Switzerland, foreigners face no restrictions on home buying.

Interest in Canadian residential real estate among foreign buyers has been steady in recent years, with particular interest from Asia, says Luis Lopez, head of business development, credit, international private banking for RBC Wealth Management. “The investment dollars are coming here and we are seeing them stay here, it is not for the short term,” he said. adding that “much remains to be seen” on how China’s slowdown will affect real-estate markets in Vancouver and Toronto .

There’s also more wealth sloshing around, looking for a safe place to park. Globally, 175,000 people crossed the millionaire threshold last year, led by growth in emerging markets like China and India, according to Boston Consulting. In China alone, the number of millionaires hit 1.4-million in 2011 from 1.2-million the year before, and that number will keep growing “strongly” in the coming years, it said. Investors from mainland China tend to see Canada as one of the top destinations for real-estate investment, according to real estate services provider Colliers International.

“Most Mainland Chinese investors buy properties in Canada because their children study there,” said Derek Lai, director of international properties, last year. “Now we also witness an emerging trend of younger buyers, such as Chinese students, purchasing bigger apartments or luxury properties.”

Foreign appetite for Canadian homes will persist, says Michael Adelson, Toronto-based sales rep for ReMax Realtron, who recently represented a seller that sold their bungalow for $421,800 over asking to a foreign buyer.

He has worked in the industry for 25 years, and seen interest from Hong Kong, Korea and Iran flourish. As someone in the industry, he’s happy to see such strong demand. As a citizen, he’s worried some local people might be getting priced out of the market.

“People have recognized this is a relatively cheap country to buy,” he says. “I think it will continue unless they put some controls in place.”

Tony Ma agrees. The agent in Markham, Ont., has hosted several groups of visiting Chinese buyers in recent months alone. They typically buy a house for $1-million or $2-million, either to live or as an offshore investment. Canada’s multicultural communities, affordability and democratic system will continue to lure buyers, he says. “I don’t see this market cooling any time soon.”

 The way Jim Flaherty sees it, his July changes to Canada’s mortgage rules are having the desired effect on the housing market.

 Housing cools

Canada’s housing market continues to cool markedly, with sales plunging 17.4 per cent in December from a year earlier. Prices, however, still held up, with a gain of 1.6 per cent from December, 2011.

On a month-over-month basis, sales were little changed from November, the Canadian Real Estate Association said today. New listings slipped 1.3 per cent from November as home sellers pulled back.

The MLS Home Price Index, which factors out changes in the types of properties sold, rose 3.3 per cent from a year earlier, marking the slowest growth since April, 2011, The Globe and Mail’s Tara Perkins reports.

For 2012 as a whole, sales of 452,372 slipped 1.1 per cent from a year earlier, and were 1.4 per cent below a 10-year average to 2011.

Sales in December fell in four of every five housing markets measured, the real estate group said, with Calgary the standout exception.

Canada’s housing market can best be plotted on two timelines: pre-Flaherty and post-Flaherty. And for many, the post-Flaherty era is a good thing.

Sales have slipped since Canada’s Finance Minister Jim Flaherty brought in new mortgage restrictions in July in an attempt to engineer the slowdown we’re now seeing, and most observers expect a soft landing, not a crash.

“National sales activity continues to hold fairly steady at lower levels since mortgage rules were changed earlier in 2012, but there are still some real differences in trends between and within local housing markets,” said CREA president Wayne Moen.

The Toronto area saw the biggest drop in New listings, the group said, but they also slumped in fully half of all markets, including, and as expected, the Vancouver area, the Fraser Valley and Vancouver Island.

Vancouver, in particular, has taken it on the chin, and observers believe it is the one market to have gone beyond a soft landing.

“The decline in new supply may reflect purchase offers below asking price that are made to sellers who are under no pressure to sell. Instead they choose to take their homes off the market once their listing expires,” said CREA’s chief economist, Gregory Klump. “In the absence of economic stresses like a spike in interest rates or a sharp drop in employment, this dynamic can be expected to keep the housing market in balance.“

Home sales are expected to continue at a lower level, as is construction of new homes.

The average price in Canada still climbed to $352,800 in December. If you take out Vancouver and Toronto, CREA said, the national average would be 3.3 per cent.

“Canada’s housing market is clearly in correction mode as we had been warning would occur well before the figures began to roll over,” Derek Holt and Dov Zigler of Bank of Nova Scotia said before the CREA report.

As for inventory, the supply of unsold homes would take almost 7 months to deplete, but that hasn’t changed much since late 2010, said senior economist Sonya Gulati of Toronto-Dominion Bank.

Ms. Gulati expects the market will stabilize now over the next few months, and that the impact of Mr. Flaherty’s changes are now priced in.

“When looking at previous mortgage rule tightening episodes, the housing market impacts have been temporary in nature,” she said. “There is no reason to think that this time will be any different.”

Both the sales-to-listings ratio and the timeline for unsold inventory are within a normal range, she added, though at some point prices will slip.

“When we compare prices to other standard metrics like price-to-income, we still believe that prices have deviated from underlying economic fundamentals. With this in mind, house prices will likely resume their trek downwards once higher interest rates come into effect in the fourth quarter of 2013.”