Existing home sales dropped 1.3% in June from the month before and were down 4.4% from the year before, suggesting that Canada’s housing market was already cooling before Ottawa tightened mortgage rules.

The national average home price in June was $369,339, down 0.8% from the same month last year, Canadian Real Estate Association reported Monday.

“Even before the new mortgage rules kicked in, all signs suggest that the Canadian housing market was already cooling—the new rules will simply pull hard on a closing door,” said Douglas Porter, deputy chief economist at BMO Capital Markets.

The new rules “will chill a market that had already seen 16 of 26 markets post June sales drops. Vancouver is leading the way down, but four Southern Ontario cities also reported double-digit sales declines.”

Finance Minister Jim Flaherty announced stricter mortgage lending rules in June because of concern of a possible housing bubble, particularly in the condominium sector in Toronto — and rising household debt.

Under the rules that went into effect last week, borrowers will be allowed to use up to 80% of their property’s value as collateral for home-equity loans, down from 85%.

In addition, the maximum amortization period dropped to 25 years from 30 years for government insured mortgages.

Flaherty also said government-backed mortgage insurance will be limited to homes with a purchase price of less than $1 million.

Canada’s housing market lost a little altitude in June, but it’s still flying pretty high

Gregory Klump, CREA’s chief economist, said home buyers didn’t rush to make purchases before the latest restrictions on mortgage regulations came into effect in July.

“That’s a big change compared to what we saw as a response to previously announced changes,” Klump said.

“It will take some time before the compound effect of previous and recent changes to regulations on Canada’s housing market becomes apparent.”

Big regional divergences persist in the housing market, said Porter. Toronto prices are up 6.8% year over year, while Vancouver, whose 13.3% slide was the only double-digit drop in Canada, has become a buyers’ market.

Calgary is the strongest market, with sales up 16.7% in the past year, one of only three markets reporting double-digit sales gains.

There have been several reports saying some real estate markets and some types of housing are over valued, although there’s a range of opinions about how much and how quickly prices will decline.

Economists and consumers have been closely watching for signs that demand has softened to the point where prices will start going down.

But the association, which represents real-estate boards and associations that handle most of the country’s property transactions through the MLS system, said Monday the decline in sales activity and an increase in new listings resulted in a “more balanced” national housing market in June.

“Canada’s housing market lost a little altitude in June, but it’s still flying pretty high,” association president Wayne Moen said in a news release.

“That said, sales activity and average prices bucked the national easing trend in a number of markets, which underscores that all real estate is local,” Moen said.

The number of newly listed homes rose 1.4% in June compared to May, led by the Toronto market. Some 42 local markets, out of 100 markets across the country, registered a monthly increase in new listings of at least 1%, the association said.

RBC senior economist Robert Hogue noted the resale market eased again in June but the number of homes newly listed for sale rose 1.4% last month.

“Market conditions, therefore, eased a little, providing more breathing room for Canadian buyers,” Hogue said in a research note.

“Despite this easing, the demand-supply equation continued to be balanced in the majority of markets in Canada. The previously tight Toronto market became much more balanced, whereas the Vancouver market inched closer to conditions favouring buyers,” Hogue said.

In the first half of 2012, a total of 257,193 homes traded hands over Canadian MLS Systems, up 4.7% from the same period in 2011.

With files from Canadian Press

Effective yesterday, mortgage shoppers with less than 20% equity are subject to thenew mortgage rules announced recently by the government.

These regulations will cut buying power and refinance ability for a minority of Canadians.

If these changes shut you out of the market, and if renting is not appealing, you don’t have a ton of options.

One alternative is to buy with a strong co-borrower. Another is to get an uninsured mortgage. But the downsides of those are higher rates and limited loan-to-values (Uninsured lenders typically don’t allow LTVs above 85%).

For those of you with mortgages already, these regs will end up pinching a few of you who renew or refinance. Here’s our story from today’s Globe and Mail on that: New mortgage rules could make switching or refinancing tougher.

And in related news, BMO released poll results this morning suggesting nearly half of Canadians are “unfamiliar” with these new rules. We’d submit that a majority still don’t understand the potential ramifications on the real estate market.

Only 45% of those surveyed knew that the maximum amortization on insured mortgages is now 25 years.

Some other findings from the BMO poll:

• 14% of prospective home buyers say the government’s changes reduce the chances they will buy a new home in the next five years.
• 41% of those still planning to buy in the next five years say these changes increase the odds that they’ll spend less on a home than they otherwise would have.
• 45% say this makes it more likely they’ll take out a smaller mortgage.

Borrowers also have OSFI’s new underwriting guidelines to deal with. This additional set of mortgage restrictions will take effect in the coming months (by October 31, 2012 at the latest in most cases).

Canada’s federal finance minister is urging his provincial counterparts to heed the lessons of Europe and keep tightening their budgets as he seeks to keep Canada’s debt-to-GDP ratio the lowest in the Group of Seven rich nations.

In remarks summarizing a conference call he held with the provincial ministers on Wednesday, Finance Minister Jim Flaherty warned on Thursday that the domestic economy could be hurt by the European debt crisis and the stalled U.S. economy.

We see the lesson in Europe if public finances are not sustainable and budgets are not balanced

“I recognized my counterparts for their work in controlling expenditures and reducing their deficits, while reinforcing the need for all governments in Canada to maintain that focus,” Flaherty said in the emailed remarks.

“We see the lesson in Europe if public finances are not sustainable and budgets are not balanced,” he said.

Canada’s federal budget deficit amounts to about 1.5% of gross domestic product and is on track to be eliminated by 2016. But the economically and politically powerful central provinces of Ontario and Quebec are grappling with more serious shortfalls.

We all try to keep on top of things when it comes to our finances, but sometimes sudden changes can throw us for a loop.

Changes to rules for insured mortgages that were announced late last week fall into that category. They could have a big impact on your mortgage payments and the total amount you can borrow.

If you’re considering buying a new home or refinancing/renewing your current mortgage, it would be a wise move to act before Monday, July 9!

The federal government announced last week four new clampdowns on insured mortgages that will quickly come into effect on July 9, 2012.

These changes include:

* Reducing the maximum amortization period to 25 years from 30 years

* Reducing the maximum amount of equity homeowners can take out of their

   homes when refinancing to 80% from the current 85%

* Limiting the availability of government-backed mortgages to homes with

   a purchase price of less than $1 million

* Fixing the maximum gross debt service ratio at 39% and the maximum

   total debt service ratio at 44%

The first two changes will have the biggest impact on Canadian borrowers.

As a mortgage broker, I can help you to quickly assess the situation and offer advice on finding mortgage solutions before the changes take effect.

If you’d like to review your options or if you have any questions, please give me a call or send me an email, and I’ll be happy to discuss how these changes may affect your mortgage situation. It’s my job to ensure you have the best options and strategies available at all times!!

Steven Brouwer – steve@entrustmortgage.ca or 604.795.5347

OTTAWA – Finance Minister Jim Flaherty is tightening mortgage rules to make it harder for people to buy or borrow on their homes.

Flaherty says changes to CMHC rules will cut the maximum amortization period for mortgages to 25 years from the current 30 years.

The changes will also limit refinancing loans to 80 per cent of the value of a home, from the current 85 per cent.

The latest moves are part of a string of initiatives undertaken recently by the federal government to slow the accumulation of debt by Canadian households, which reached a record 152 per cent of income in the fourth quarter of last year.

This will mark the fourth time Ottawa has tightened mortgage rules since 2008.

Central bank governor Mark Carney has been warning for several years that some Canadians are getting in over their heads with debt, and that they could face problems once interest rates — which sit at historic lows — start rising or if there is a second economic crisis.

OTTAWA—Bank of Canada Governor Mark Carney is playing down the need to boost borrowing costs at home as the world waits to see if European leaders can halt the mounting financial chaos on the continent.

In a significant shift, the central bank kept its trend-setting interest rate steady at 1 per cent Tuesday but eased away from warnings that higher interest rates were likely in the near future.

It was largely a reaction to an economic crisis in Europe that is sparking fears of a spreading financial meltdown that, if unchecked, could spiral into a repeat of the 2008-09 global recession.

Prime Minister Stephen Harper warned Europeans to act urgently.

“I don’t want to sound too alarmist, but we are kind of running out of runway here,” he told CBC-TV. “And in terms of structure of the eurozone and in terms of addressing these problems, we do need to see a broader game plan.

“We just can’t say, ‘Let’s wait until the Greek election,’ “ Harper said in a reference to the June 17 election in Greece that could spell out the fate of the eurozone. “We cannot have a Greek election determining the future of the global economy, that’s not fair to anybody.”

Like central bankers around the globe, Carney is keeping his options wide open as the European Union struggles to deal with the current debt troubles threatening Spain, Italy, Portugal and Greece.

A continent-wide banking crisis would damage global economic conditions, and finance ministers from Canada and other G7 developed nations held an emergency conference call Tuesday in which they discussed the need for timely, concerted action by EU members.

No plans for collective G7 help for Europe emerged from the meeting, but Japanese Finance Minister Jun Azumi said major European countries promised to address the crisis responsibly.

Carney, who signalled in April he was keen to begin driving up borrowing costs to head off inflation, is now saying such a move hinges on further improvements in business conditions.

A hike in the bank’s trend-setting rate will depend on “the extent that the economic expansion continues,” Carney said in a statement accompanying Tuesday’s rate decision. In the subtle language of central bankers, it was a telling change in tone that means Canadians are unlikely to see a rise in borrowing costs for some months. Many economists believe that, under the current economic circumstances, the bank will hold steady at 1 per cent until next year.

“The outlook for global economic growth has weakened in recent weeks,” Carney said. “Some of the risks around the European crisis are materializing and risks remain skewed to the downside. This is leading to a sharp deterioration in global financial conditions.”

He also noted that, while the U.S. economy continues to expand at a modest pace, economic activity is slowing in emerging market economies such as China, Brazil and India.

Assessing the Bank of Canada’s current outlook, BMO Capital Markets economist Doug Porter said, “Essentially, the ground has shifted out from under their feet in the last seven weeks since their last (rate-setting) meeting when they sent a rather clear warning that higher interest rates were coming.”

Carney said underlying momentum in the Canadian economy appears consistent with the bank’s prediction of 2.4 per cent growth in 2012 despite slightly slower-than-expected expansion in the first three months of this year, when growth on an annualized basis came in at only 1.9 per cent.

The next rate-setting is scheduled for July 17.

Highlights of CAAMP report:

– 23% of mortgage borrowers voluntarily increased their regular payments
– 19% made lump sum payments
– 10% made both lump sum payments and increased their regular payments
– 50% of borrowers pay at least $100 per month above their required payments
– 74% of borrowers who renewed in the last year saw their rate decrease by an average of one-half percentage point
– 83% of Canadians have at least 25% equity in their home

Canadians have been taking advantage of record-low interest rates to lock in their mortgages, a new survey suggests.

The Canadian Association of Accredited Mortgage Professionals, in its annual spring release, says among the 3.8 million Canadians with a fixed rate mortgage, 14% chose to lock in during the past year.

“This data supports comments by lenders that they have high numbers of new borrowers who start with variable rate mortgages but soon opt for the security of fixed rates,” says CAAMP in the report. Overall, 29% of those with mortgages have a variable rate leaving them with exposure to any changes in the Bank of Canada’s lending rate which the prime rate — used in those loans — tends to track.

The survey also found Canadians are making significant efforts to reduce their debt with 23% of respondents saying they voluntarily increased their regular payments, 19% making lump sum payments and 10% doing both.

For those who increased their regular payments, the average amount of the increase was $400-$450 per month. With about 5.85 million mortgage holders in Canada and roughly 1.35 million increasing their payments, it translates into about $7-billion per year. Lump sum payments averaged $12,500, and with about 1.1 million people making these payments, that equals about $13.75-billion.

“Despite daily warnings in the media about mortgage indebtedness — or maybe because of them — Canadians are making responsible decisions about their mortgages and they’re exhibiting confidence in their own situations,” said Jim Murphy, chief executive of CAAMP. “We should feel encouraged by this behaviour — it means Canadians are well positioned to weather a potential rise in interest rates.”

Overall Canadians have $994-billion in mortgages on their primary residences and $161-billion in controversial home equity lines of credit or HELOCs which allow them access to the equity in their home.

The total equity takeout from residences was $46-billion in the past year with renovations accounting for $17.25-billion of the money used. Another $10-billion was used for investments and $9.25-billion for debt consolidation.

Amortization periods, which have been legally shortened by Ottawa for insured government backed loans, are shortening. Lengths are down 20% but Ottawa legally reduced the length a mortgage could be amortized from 40 to 30 years over the past three years.

Craig Alexander, chief economist with Toronto-Dominion Bank, said the locking of mortgage rates has protected consumers from future rise in rates. “It’s a very positive thing that people are shifting to fixed rate because it provides greater security in protecting from upside risk in interest rates,” he said.

The survey also found despite the fact three of the major banks are either out of or backing out of the mortgage broker channel, it still is an important segment of the market. Brokers account for 26% of the market overall and captured 31% of activity in 2011.

The report is based on information gathered by Maritz Research Canada in a survey of 2,000 Canadian consumers in April and May 2012.

Posted in: Mortgages 

http://business.financialpost.com/2012/05/30/canadians-locking-in-low-rate-mortgages-reducing-debt/

A new report is backing up broker concerns OSFI is about to fix what ain’t broke – this new research identifying already-reduced amortizations, low arrears and high levels of homeowner equity.

“Mortgage borrowers are making significant efforts to accelerate repayment, such as voluntarily increasing their regular payments (23 per cent) and making lump sum payments (19 per cent), with some borrowers (10 per cent) doing both,” finds CAAMP’s spring consumers’ report, released Wednesday. “And approximately 50 per cent of borrowers pay $100 per month (or more) above their required payments.”

The report relies on an online survey of 2,000 Canadians, including 800 homeowners with mortgages. It was conducted by Maritz Research and adds weight to the findings of a CMHC report issued last week.

It also suggests that recent buyers expect amortization periods will be about 20 per cent shorter than their contracted length, mirroring the current reality for many Canadian homeowners.

To boot, the report also suggests 83 per cent of Canadians have at least 25 per cent equity in their homes. Separately and collectively, those findings point to a mortgage market well positioned to handle the challenges of a correction in the housing market and to protect the investment of the vast majority of homeowners.

Brokers are also hoping the findings will encourage OSFI to reconsider some of the underwriting
guidelines it will likely bring into force next month.

Those measures – from re-qualification at renewal to slashing the maximum loan-to-value on HELOCs – are meant to throw up a firewall around Canada’s housing market.
Brokers haven’t been convinced of the need for it.

The position is garnering support outside of the CAAMP research, with the official opposition in Otttawa registering the same concerns as brokers.

“We just need to make sure that people are protected in some of these temporary situations (where they may have lost a job),” said Peggy Nash, the federal NDP’s finance critic, “if they have a good credit record and have never had a problem making their payment.”

OSFI has floated the idea of forcing mortgage-holders to re-qualify at renewal, although exactly what that involves remains unclear.

Brokers, and their professional associations, were among the first to balk at the suggestion, arguing it could create the kind of market crisis the proposals aim to overt.

Nash appears to agree, with her party most worried Canadians temporarily out of work could possibly lose their homes. She’s asking the Harper government to back off.

But OSFI has suggested it has little intention of backing down, Its manager of policy developing expressing concern about the country’s ability to meet a significant housing correction head on.

http://www.canadianmortgageprofessional.com/news/breaking-news/report-osfi-has-the-wrong-end-of-the-stick/123796/

National Post/Brent Foster

Canada Mortgage and Housing Corp. has been in the crosshairs of the federal government for a while now. Late last month, Ottawa pulled the trigger, announcing the agency would come under tougher scrutiny.

OTTAWA — It’s not often a Crown corporation bangs its drum loudly, appears to question market sentiment and misrepresents the central bank’s monetary policy — all in the same day.

Canada’s housing agency did just that on Tuesday, issuing an annual report that read like a defence of its business practices, and saying that despite concerns by Jim Flaherty, the Finance Minister, and many others about the real possibility of an overheated housing sector, there was no sign of a market bubble.

In the same report, referring to interest rates, it offered that the Bank of Canada “has indicated that it is likely to remain at 1.0% for 2012,” prompting a strong denial by the central bank itself. CMHC later issued a clarification, saying it was characterizing views of market forecasters and “we don’t have specific guidance from the Bank of Canada. We’re not in the inner circle of monetary policy.”

THE CANADIAN PRESS/Sean Kilpatrick

“I’ve been concerned about the CMHC for some time,” Jim Flaherty said late last month when announcing the agency would come under tougher scrutiny.

The 66-year-old Canadian institution has been in the crosshairs of the federal government for a while now. Late last month, Ottawa pulled the trigger, announcing the agency would come under tougher scrutiny. The responsibility for ensuring that happens will be passed on from the Human Resources and Skills Department to the Office of the Superintendent of Financial Institutions.

“I’ve been concerned about the CMHC for some time in the sense that it’s become an important financial institution in Canada, and it was not subject to the same supervision by the Office of the Superintendent of Financial Institutions,” Mr. Flaherty said in announcing the change.

Recently, the minister has even contemplated eventually taking the mortgage insurance function of the CMHC private, telling a National Post editorial board such a role for the agency was not “essential.” According to a Bloomberg News report, former CMHC Chairman Dino Chiesa, who’s term ended in March, studied the sale of Australia’s government-owned insurer and presented the findings to the Bank of Canada.

Rock-bottom mortgage rates have fueled Canada’s housing boom, but they have also raised concerns over record-high household debt as many consumers take advantage of cheap lending costs while they last. Higher rates could push many households beyond their limit and out of the market, and that could lead to a drop in prices, especially in the over-development condo sector.

On Tuesday, CMHC also reported housing starts jumped 14% in April, mainly for multi-unit construction, with some economists saying this was proof the housing market is heating up, especially in the condo segment in major cities.In its annual report, however, CMHC said, there was no “clear evidence” of a housing bubble.While the report did not make specific reference to the government’s changes in the oversight of CMHC, it did offer what could be characterized an strong validation of its role and operations. “CMHC follows prudential regulations as set out by the Office of the Superintendent of Financial Institutions, with CMHC maintaining more than twice the minimum capital required by OSFI,” it said. “As a result, CMHC is well positioned to weather possible severe economic scenarios.”

The report also highlighted the important role CMHC plays in the housing market, which it said accounted for 20%, or $346-billion, of Canada’s gross domestic product last year. It pointed out the agency “manages its mortgage loan insurance and securitization guarantee operations using sound business practices that ensure commercial viability without having to rely on the government of Canada for support.”

Its mortgage loan insurance portfolio in 2011 accounted for most of its $1.53-billion in net income, it said, “which helped improve the government of Canada’s fiscal position.”

“CMHC manages its insurance business in a financially prudent manner and generates reasonable returns for the Government of Canada,” it said. “Since 2002, CMHC has contributed $16-billion to improving the government’s fiscal position.”

The corporation, created in 1946, currently has a $600-billion loan limit, which the government increased three years ago from $450-billion. The federal government guarantees the full value of mortgages insured by CMHC and 90% of loans insured by private firms.

Posted in: FP Street  Tags: cmhc, housing market, Jim Flaherty