Canada's house prices continue to slow, demand remains strong

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The Canadian house price rises continue to subside, amidst the government’s continuous implementation of several rounds of housing market cooling measures.

House prices in the country´s eleven major cities rose by just 2.68% during the year to end-Q3 2013, from year-on-year price rises of 1.81% in Q2 2013, 2.6% in Q1 2013, and 3.08% in Q4 2012, based on figures released by the Teranet – National Bank of Canada. When adjusted for inflation, house prices in the country increased by 1.61% over the same period.

On a quarterly basis, nationwide house prices increased by 1.35% (1.06% inflation-adjusted) in Q3 2013.

However, the national figures conceal variations in local house price movements. During the year to November 2013, Calgary recorded the highest annual house price increase of 5.9%, followed by Hamilton (5.2%), Toronto (4.2%), Vancouver (3.9%), and Quebec (3.7%). Modest house price rises were also seen in Edmonton (3%), Winnipeg (2.8%), Ottawa (1.2%), Montreal (0.8%) and Halifax (0.8%). Only Victoria registered a house price fall of 1.4% in November 2013 from a year earlier.

The aggregate composite MLS® house price index rose by 3.52% y-o-y in October 2013, according to the Canadian Real Estate Association (CREA). By property type:

The average price of one-storey single family homes rose by 4.19% y-o-y to October 2013.
The average price of two-storey single family homes increased by 3.88% during the year to October 2013.
The average price of townhouses/row units rose by 3.28% over the same period.
Apartments saw minimal annual price increase of 2.05% in October 2013.

The national average price for homes sold increased to CA$391,820 (US$368,467) in October 2013 from a year ago, according to CREA.
House prices in Canada surged by 49% from Q1 2000 to Q1 2009, mainly due to low interest rates and continuous economic growth. From Q2 2009 to Q4 2012, house prices increased by another 17%, despite efforts by the government to cool the housing market.

Actual home sales posted an 8.3% gain in October 2013 from the same period last year, to a total of 402,299 homes, according to the Canadian Real Estate Association (CREA), led by Greater Vancouver, Calgary, Edmonton, and Greater Toronto.

“While the Finance Minister will no doubt continue to keep a close eye on Canadian housing markets for signs of overheating as interest rates remain low, October sales results may provide him with reassurance that tightened mortgage regulations and lending guidelines are working as intended,” said Gregory Klump, CREA’s Chief Economist.

In mid-2013, the country´s federal housing agency, the Canada Mortgage and Housing Corporation (CMHC) tightened mortgage lending again by limiting guarantees it offers to banks and other lending companies, in an attempt to strengthen its bid to slowdown the housing market.

Canada’s nationwide house prices are expected to increase by another 1.7% in 2014, according to the Canadian Real Estate Association (CREA). In 2013, house prices are expected to rise by 4.8% in Alberta, 3.1% in Ontario, 2.7% in British Columbia and 0.9% in Quebec.

In the third quarter of 2013, the economy registered a higher-than-expected annualized real GDP growth rate of 2.7%, up from 1.6% in the previous quarter, according to Statistics Canada. The country’s economic growth is expected to be 1.6% in 2013, 2.3% in 2014 and 2.6% in 2015, according to the Bank of Canada (BoC).The BoC kept its key interest rate steady at 1% in October 2013, in place since September 2010.
Tighter mortgage lending rules
Canada interest rates

The dear that Canadian housing might be in bubble has been a major concern for the government. In order to ensure a soft landing, tighter mortgage rules take effect on July 9, 2012:

The reduction of maximum amortization from 30 years to 25 years, discouraging buyers from acquiring too much debt; and
Maximum LTV ratio was lowered from 85% to 80%.

As the Canadian Mortgage Trends (CMT) reports, the government will also:

Limit the maximum gross debt service (GDS) to 39%, and the total debt service (TDS) to 44%; and
Ban mortgage insurance on properties over $1 million.

These measures were applauded by Bank of Canada (BoC) Governor Mark Carney as appropriate and timely, a contribution to reducing household indebtedness. The new mortgage rules are expected to tighten mortgage lending, which the country’s low interest rates won’t.
Canada outstanding residential mortgages

The Bank of Canada has maintained its key interest rate at 1% for 14 policy announcements, since implementation in September 2010.

Actual mortgage rates also remain at historic lows, compared to pre-crisis levels of 2008:

The 1-year mortgage rate has fallen to 3.2% in May 2012, from 6.15% in May 2008.
Interest rates on 3-year mortgages have decreased to 3.95% in May 2012, from 6.15% in the previous four years.
The 5-year mortgage rate has fallen to 5.34% in May 2012, from 6.65% four years earlier.

Higher existing home sales in 2012

Sales of existing homes in Canada are expected to increase by 3.4% in 2012, to 472,300 units, according to the Canadian Mortgage and Housing Corporation (CMHC).
Canada home sales

In 2011, rhere was a 2.4% increase in total MLS existing home sales. Leading the increase were Saskatchewan (10.3%) and Alberta (8.1%). Sales of existing homes in Canada peaked in 2007, when 520,511 housing units were sold.
canada housing starts and completions

Housing starts slightly increased in 2011, by 2.1% to 193,950 units, having peaked in 2007 at 228,343 housing units. Meanwhile, completions fell by 6.01% in 2011, to 175,623 units. The average number of housing units completed from 2002 to 2008 was 207,244 units per year.
New house prices up a little

Canada’s new housing price index (NHPI) rose by 2.5% during the year to April 2012, according to Statistics Canada. The metropolitan areas with the highest y-o-y price increases were Toronto and Oshawa (5.9%), Regina (5.6%) and Winnipeg (4.3%).
Stable rental market; lower vacancy rate

Average rents in Canada increased 2.1% during the year to April 2012, according to CMHC. Rents for new and existing two-bedroom apartments rose in all provinces, with rises from 0.9% (Quebec) to as high as 6.6% (Manitoba).
Canada rental vacancy rate

The most expensive rental properties can be found in Alberta, which has average monthly rents of CA$1,055 (US$1,028) for a two-bedroom apartment, followed by British Columbia with CA$1,036 (US$1,010) per month, and Ontario with CA$1,014 (US$988) per month.

Quebec offers the lowest rents for two-bedroom apartments at CA$677 (US$660).

Rental yields in Montreal are really attractive, ranging from 6.30% to 8.19% on small apartments, according to Global Property Guide research of January 2012. The average rental yield in Montreal increased to 7.19%, from its 6.06% average in 2011.

Toronto’s rental yields are lower, ranging from 3.68% to 5.59%. Its average rental yield fell to 4.70%, from an average of 5.71% in 2011.

Due to the country’s improving job market, and the influx of new migrants to major centres, demand for rental apartments has been increasing, causing a decline in the national vacancy rate to 2.3% in April 2012, down from 2.5% from a year earlier, according to CMHC.

Among the provinces, New Brunswick had the highest vacancy rate at 6.2%, followed by Prince Edward Island (4.8%), and Nova Scotia and British Columbia (3.4%). Manitoba had the lowest vacancy rate at 1.2%.
Economic slowdown
Canada gdp growth and inflation rate

In the third quarter of 2013, the economy registered more-than-expected annualized real GDP growth rate of 2.7%, up from 1.6% in Q2 2013 and 2.5% in Q1 2013, and the fastest pace in eight quarters, according to Statistics Canada.

However, the country’s economic growth is expected to slow to 1.6% in 2013 before growing by 2.3% in 2014 and 2.6% in 2015, according to the Bank of Canada (BoC). The Canadian economy expanded by 1.7% in 2012, a slowdown from GDP growth rates of 2.5% in 2011, and 3.4% in 2012, according the BoC.

The nationwide unemployment rate held steady at 6.9% in November 2013 from the past three months but actually unemployment fell from 7.2% in a year earlier, according to Statistics Canada. The Canadian economy created an additional 21,600 jobs in November 2013, though most of the new workers were part-time.

From 2009 to 2012, the average unemployment rate rose to 7.8%, up from an average annual rate of 6.9% from 2000 to 2008, according to the International Monetary Fund (IMF).

In November 2013, the country’s overall inflation rate slowed to 0.7%, below the 1% to 3% target band. In 2012, the nationwide inflation rate stood at 1.5%, from 2.9% in 2011, 1.8% in 2010, 0.3% in 2009, and 2.4% in 2008, according to the IMF.

The BoC kept its key interest rate steady at 1% in October 2013, in place since September 2010.

“We think that interest rates will stay where they are for quite some time,” said Bank of Canada Governor Stephen Poloz. “So issuing a warning that they are almost ready to go up—it’s not the right timing.”

Canada’s New Home Prices See Moderate Gains In December

New home prices in Canada climbed 0.1 percent in December from November, as expected, for an average annual increase in 2013 of 1.8 percent, the slowest since 1999, according to Statistics Canada data released on Thursday.

The monthly advance matched the median forecast in a Reuters poll of analysts and reinforces the view that the country’s housing market is stabilizing after a recent boom.

The closely-watched Toronto-Oshawa region was the top contributor to the monthly advance in the new housing price index with a gain of 0.2 percent in December and of 1.4 percent year-on-year.

Vancouver, another hot market for real estate, saw a 0.1 percent monthly decline in prices and a 1.1 percent decline from a year earlier.

Nationwide, prices rose 1.3 percent in the 12 months to December, down from 1.4 percent in November and the fifth straight month of slowing growth.

Overall, prices were unchanged in 11 metropolitan regions, down in five and up in five.

The Canadian government has intervened in the mortgage market several times since 2008 to cool the sector, and most economists expect a gradual softening rather than a U.S.-style crash.

The new housing price index excludes condominiums, which the government says are a particular cause for concern.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

Top 10 Tips For Mortgage Borrowers in 2014

The clock is ticking for buyers and homeowners who want to grab a low mortgage rate in 2014. But if you stay on top of your game, keep your finances in order and act quickly, you can still grab attractive mortgage deals.

These 10 mortgage tips can help you with your mortgage decisions in 2014.

1. Document your finances. Lenders will be extra diligent when underwriting home loans in 2014, as new mortgage regulations went into effect in January. The rules put pressure on lenders to verify that borrowers have the ability to repay their loans.

Keep good records of your finances, including bank statements, tax returns, W-2s, investment accounts and any other assets you own. Be ready to explain any unusual deposits to your accounts. Yes, the $500 that Grandma deposited in your account for Christmas could delay your loan closing if you can't prove where the money came from.

2. Lock a rate as soon as you can. Rates will likely climb in 2014 as the Federal Reserve is expected to reduce the pace of the economic stimulus program that has long helped keep rates low. If you are planning to get a mortgage, lock in a rate as soon as you are comfortable with the numbers.

3. Refinance now - if you still can. Many homeowners lost the opportunity to refinance at a lower rate when rates jumped in 2013. But those who are still paying more than 5 percent interest on their home loans might still have an opportunity.

If you think you may be able to save with a refinance, but you are not sure, it doesn't hurt to try. Speak to a loan officer and take a look at the numbers to see if refinancing still makes financial sense for you after you consider how long it will take to break even with the closing costs.

4. Buyers, use your bargaining power. As mortgage rates climbed, lenders lost a big chunk of their refinance business. In 2014, they will turn their attention to homebuyers and will fiercely compete for their business. Buyers should take advantage of bargaining power they gain with that increased competition. Shop around for the best deal and look beyond the interest rate on the loan.

5. Learn your rights as a borrower. Mortgage borrowers will get many new rights as consumers this year when new mortgage rules created by the Consumer Financial Protection Bureau go into effect in 2014. If you run into issues with your mortgage servicer in 2014 or fall behind on your payments, make sure you are aware of your rights and put them to use.

6. Take good care of your credit. It's nearly impossible to get a mortgage without decent credit these days. That will continue to be the case in 2014. If you are planning to get a mortgage, monitor your credit history and score until your loan closes. The best mortgage rates usually go to borrowers with credit scores of 720 or higher. You may still get a mortgage with a score of 680, but lower scores will mean higher rates or higher closing costs.

7. Don't overspend. Lenders don't want to give out loans to borrowers who will have little money left each month after they pay their mortgages and other debt obligations such as credit cards and student loans. If that becomes the case, the lender will tell you that your DTI, or debt-to-income ratio, is too high and you don't qualify for a loan. Try to keep your monthly debt obligations, including your mortgage and property taxes, below 43 percent of your income.

8. Consider alternative mortgage options such as ARMs. Mortgage rates are rising, but there are alternatives to grab a lower rate, depending on your plans.

A homeowner planning to keep a house for seven to 10 years could take advantage of lower mortgage rates by choosing a seven- or 10-year ARM instead of the 30-year traditional fixed-rate mortgage. Rates on adjustable-rate mortgages can be as much as 1 percentage point lower than on fixed-rate loans.

If you are not sure for how long you plan to keep the house, a fixed-rate loan is probably the better choice.

9. Considering an FHA loan? Reconsider. FHA loans have long been popular among first-time homebuyers because they require low down payments and have somewhat less strict underwriting standards than conventional loans. But they come at a price. Mortgage insurance premiums on FHA loans are likely to continue to rise in 2014, and after recent changes, the borrower is now required to pay for mortgage insurance for the life of the loan. Try to qualify for a conventional loan before you apply for an FHA mortgage.

10. Don't panic. Yes, mortgage rates will likely climb in 2014. But don't panic, thinking you have to buy a home now to grab a low rate. If you are shopping for a home, do your best to move quickly, but remember that this is one of the biggest financial decisions of your life. Get your mortgage and buy your home when you feel ready.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

Canada Scraps 'Millionaire Visa,' Sends B.C. Property Market Reeling

Real estate agents in Vancouver say property prices could take a hit, after Canada scrapped a program which allowed wealthy immigrants to fast-track the visa process.

The Immigrant Investor Program, launched in 1986, offered visas to business people with a net worth of at least $1.6 million who were willing to lend $800,000 to the Canadian government — for investment across Canada — for a term of five years.

By 2012, the scheme had to be temporarily frozen due to a huge backlog of applications from wealthy mainland Chinese hoping to come to B.C. Now, the government has announced it will end the program for good and scrap all 59,000 applications backlogged worldwide.

The decision came less than a week after the South China Morning Post published a series of exclusive investigative reports into the controversial scheme.

Property prices could take a hit

In West Vancouver, real estate agent Clarence Debelle is still receiving offers from mainland China for luxury property, but she’s concerned the end of the investor program will have an impact on the local economy and the high-end housing market.

“I deal directly with these people who bring a lot of wealth, who are creating lots of jobs for local Canadians — builders, trades, architects, realtors like myself,” said Debelle.

“Most of the buying is coming from Chinese immigrants who are wealthy, so if we make it difficult for them to come into this country, we have killed 80 to 90 per cent of the buying in West Vancouver.”
Immigration lawyer Richard Kurland agrees.

“When you suddenly stave off the intake of literally hundreds of millionaires in the Vancouver property market, prices can only go one way and that’s down,” said Kurland.

Market impacted by more than investors

Others aren’t so sure. Even with the investor program frozen, housing prices continued to rise.
Tom Davidoff with UBC’s Sauder School of Business says the market is driven by other things like low interest rates and the local and global economies.

“Given that in the last couple of years, we haven’t seen the market cool off, it’s hard to believe that freezing the investor market is going to kill even the high-end in Vancouver,” said Davidoff.

The government has also announced the end of the Entrepreneur Program, a smaller scheme for business people who plan to own and manage a business in Canada.

However, wealthy investors can still come to Canada through the Start-up Visa Program, which encourages immigrant entrepreneurs to partner with private sector organizations to invest in local start-ups.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

Hundreds of Canadian Credit Cards Hacked By Infected Terminals, Firm Warns

A new strain of computer malware infecting payment card terminals in restaurant and gas station has compromised nearly 700 credit cards in Canada, a computer security firm says.

The viral code, JackPOS, infects point-of-sales terminals, a security breach similar to other highly publicized recent cases that struck victims such as the Target retailing chain or the White Lodging hotel management firm.

According to a map released Monday by the California security firm IntelCrawler LLC, JackPOS stole data from 400 cards in Vancouver and from 280 other cards at a location in Longueuil, Que., south of Montreal.

IntelCrawler said the infection appeared about three weeks ago.

In an e-mail to The Globe and Mail, IntelCrawler CEO Andrew Komarov said the point-of-sales terminals were breached through remote access, by hackers who created a large list of possible passwords (such as POS1, Administrator or 123456789) and then “brute-forced” themselves into the systems.

“It provides them good results, as the security in this sector is surprisingly really very poor,” M. Komarov wrote.

Other countries affected by JackPOS include Brazil, where data for 3,000 cards in Sao Paulo were stolen; India, where 420 cards were compromised in Bangalore; and Spain, where 230 cards were pirated in Madrid.

The two outbreaks in Canada likely happened at a gas station, said Richard Henderson, a Vancouver-based security strategist for Fortinet's Threat Research Labs.

“In Canada we’re lucky that the vast majority of our transactions done day-to-day are with chip-and-PIN, which are much more secure,” he said, adding however that some gas stations’ pumps are still relying on the old magnetic-swipe method that is more vulnerable to hacking.

JackPOS appears to be a variation of a previous malware, Alina. Both are known as RAM scrapers, which capture card data when it is transmitted from the sales terminal to a payment-processing centre.

Mr. Henderson said JackPOS’s key feature is its ability to hide on a machine by pretending to be a version of Java, a programming platform used by some computer applications.

“That’s a really neat obfuscation technique by the malware to make it look like it’s a legitimate piece of software.”

According to a global security report by the anti-cybercrime firm Trustwave, victims of point-of-sale hacking tend to be merchants or franchises who have to outsource their IT work and rely on contractors who access their systems remotely. Weak passwords and remote access make it easier for hackers to breach POS systems.

Most of the breaches can be attributed to three criminal groups, with the data being dumped in Russia, Ukraine or Romania, the Trustwave report said.

The rollout of chip-and-PIN cards in Canada and Europe have made fraud harder. However, the report said cyber-thieves still go after POS targets in hotels and premium retailers, because those businesses attract an international clientele that does not have chip-and-PIN cards.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

Toronto House Prices Could Slip In 2015, TD Bank Predicts

Report estimates Toronto, Vancouver real estate markets are 10 to 15 per cent overvalued, compared to 10 per cent for rest of country
Barely has the year — and a whole new round of bidding wars — begun and the first of the big banks has weighed in with a warning that Toronto’s housing market is 10 to 15 per cent overvalued.

So is Vancouver’s, says TD Economics in a report released Monday, noting that both cities have been seeing “frothier conditions” than the rest of the country, where house prices remain about 10 per cent overvalued, largely because of low interest rates.

“Toronto and Vancouver make up 40 per cent of the Canadian housing market, so that’s what’s really driving the overvaluation measure,” said TD economist Diana Petramala in an interview.

A spike in interest rates or a “negative economic shock” could potentially send resale home prices tumbling by 25 per cent, Petramala notes. But it’s far more likely there will be a “gradual unwinding of excesses” in the Canadian market as interest rates slowly rise, along with incomes, over the next few years.

It’s likely to be 2015 until Toronto, and much of the country, start to see any real downturn in sales and prices, according to TD.

While Toronto home prices jumped 6.8 per cent in 2012 and 5.4 per cent in 2013, they could rise just 2.7 per cent this year and slip by 1.2 per cent in 2015, when interest rates are expected to start climbing, the report forecasts.

Petramala notes that “prices ended 2013 on a much higher note than we had been expecting as households faced an unusually low level of homes for sale.”

That has played out in the old City of Toronto, in particular, in an unexpectedly feverish start to 2014, with a simple Junction Triangle row house going for $210,000 over asking price in a flurry of 32 bids.

“The one concern we have is that we’re seeing more strength in Toronto’s house prices than expected,” says Sal Guatieri, senior economist with BMO Capital Markets.

Even all those new condos coming on the market haven’t been enough to hold down housing prices, says Guatieri, noting that resale condo prices were up almost 4 per cent in December, year over year.

“We thought, if anything, Toronto house prices would fall somewhat last year. But underlying demand is pretty strong, net migration is pretty healthy and the number of echo boomers aged 30 to 34 is growing quite rapidly at the moment and they are a prime homebuying cohort, especially for condos.”

The housing market is “overshooting,” but “it’s not a market that is crashing,” says Benjamin Tal, deputy chief economist at CIBC World Markets.

He continues to believe that the market will slow to a soft landing and that real estate numbers to be released this week detailing January sales and prices (those from the Toronto Real Estate Board are due out Wednesday) could start to provide a more “realistic” picture of the health of the housing sector.

“This market will be tested when interest rates start rising, and that means it won’t be tested for a while.”

The Canadian housing market and worries about a real estate bubble have been key concerns for policy-makers for several years.

Recent indicators have suggested the market may be headed for a soft landing instead of a bubble bursting, but concerns have persisted.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

How Canadians Budgeting For Higher Mortgages? Don’t Know or Care?

I haven’t been blogging much, nearly everything I do is on Twitter now. It’s pretty amazing how writing in 140 character intervals forces you to the core of your argument. Nevertheless I occasionally want to have a long rant so here we are.

How are Canadians budgeting these days? Like many countries there is a huge culture of home ownership in Canada. It makes for a great new facebook pic that unofficially says you’ve ‘made-it’.

There are two issues that are very concerning for home buyers. First off, you have what I’m very confident is a real estate bubble in Canada. This has been discussed on this site since it was started and more recently in the media. That being said, the media focuses mainly on the condo bubble. Indeed I agree that condos are the most overvalued but much like the real estate bubble in the US which started with ‘just sub-prime borrowers’ a large correction in real estate prices will effect the entire sector.

We’ve all heard this argument a million times and I’m not going to bring it any further today. Its my opinion, I’ve presented my facts and if you disagree with my conclusion that’s cool.

But back to the story, maybe you don’t care about what your house is worth in 2, 10 or 20 years, you are just buying it for pride of ownership. Again, that’s cool, not my cup of tea when it comes to your biggest investment, but my question is; how are people budgeting this?

There is a huge difference between the US and Canada in terms of mortgages. In the US, the standard government backed mortgage is a 30 year fixed. You can perfectly budget your mortgage expense over 3 decades. I won’t even mention other benefits such as writing off part of the payments. In Canada, our government backed mortgage is traditionally a 25 year mortgage, fixed for 5 years.

So Canadians really have no clue what their mortgage payment will be in 5 years. With record low interest rates, it’s not hard to imagine them reverting to a more normalized level. What happens if your mortgage payment doubles? (or worse), let alone if we have a recession and a big jump in unemployment. This is the problem with the ‘no bubble crowd’ which cite the current relatively low debt service ratios as evidence of appropriate real estate prices. Yes, service ratios are good now, with today’s economy and low interest rates. The problem is a mortgage lasts for 25 years and credit conditions shouldn’t be judged on today’s economic variables remaining constant for decades to come.

So How Are Canadians Budgeting For Higher Mortgage Costs? Well I did some boots on the ground research. I’m 28 and more and more of my friends are making the big switch from renting to buying. I’ve asked them about this and I get very similar responses on Canadian real estate.
Real estate will always go up (recency bias).

Renting is wasting your money (they need to factor in potential capital losses and hidden costs of home ownership).

The bank approved me for this mortgage, therefore I can afford it (don’t let the bank’s poor decision making determine your own).

And in terms of what happens when they have to renew their mortgage in 5 years? Well I usually get a blank look and then something like “I never really thought about that”.

So there is your answer, Canadians don’t know and and don’t really care about future mortgage payments and housing prices. They are budgeting based on today’s current rates and happy to have their own place.  They are busy with work and the every day problems that come with life. They are not economists and don’t spend their day thinking about income ratios and where interest rates will be in 5 years. I understand this way of thinking, but given the magnitude of the financial commitment, I’m nervous for them.

End of story, Canadians are extremely exposed to higher interest rates and its low on their list of worries.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.