Search Results for: mortgage qualification in toronto 2012
Canadian home prices cooling
Overheated Ontario and B.C. markets slowing
Adam Carter, CBC News
As mortgage rates plummet to historic lows, some consumers may be wondering what’s waiting for them in the usually frantic spring housing market.
Comment: Bidding wars, chaos, not enough inventory. The usual…
“March through June is prime time in the real estate and mortgage markets,” Robert McLister, editor of Canadian Mortgage Trends told CBC News in an email.
McLister said headline-making interest rates are encouraging some to buy early, but those numbers are not huge, at least at this point.
“The spring should be ‘steady as she goes’ unless the government tightens mortgage qualifications again, or rates spike. In either case, we could see a meaningful bulge in demand from people trying to beat those changes.”
Comment: But neither of those things will happen, so why mention them?
McLister is not alone in this prediction. Most experts seem to think the Canadian housing market will remain relatively stable for the foreseeable future.
Comment: Amen!
According to the most recent Canadian Real Estate Association (CREA) forecast, national home sale activity for 2012 and 2013 is projected to remain roughly on par with the 10-year average for annual activity, because of low interest rates and the projected low economic growth.
Comment: So why the headline about cooling if the market is staying steady?
“Interest rates aren’t going to be low forever – but they’re not going anywhere fast,” Gregory Klump, CREA’s chief economist, told CBC News.
Scotiabank Senior Economist and Real Estate Specialist Adrienne Warren echoed that sentiment earlier in March, at Scotiabank’s 2012 Canadian Real Estate Outlook and Trends Forum.
“Home prices have leveled out over the past six months as market conditions become better balanced and as higher prices, tighter mortgage regulations and slowing job growth cool demand,” she said.
“We expect sales and prices will be relatively flat in the year ahead.”
The low rate debate
In the last CREA forecast, Klump called the continuation of low interest rates a “silver lining” in the face of what looked like a risky Canadian economic outlook.
But some experts say the low rates could be dangerous if consumers jump into the housing market and then find that interest rates, or their employment prospects, change.
Comment: But interest rates have only gone down over the past few years. The banks are not stupid, they want mortgages. That is why they are having a rate war right now. People are buying, they know that – and they want your money.
“The general concern is interest rates are at historic lows both in nominal terms and to some extent in real terms,” Tsuriel Somerville, a professor in real estate finance at the University of British Columbia told CBC News.
“The Bank of Canada has given signs that rates are going to rise and people feel that rates are going to rise – so there’s a worry that people might take on debt that they can handle now, but might not be able to handle at higher interest rates.”
“Fixed rates are still at eye-popping lows,” McLister said, referring to the current four– and five-year mortgage interest rate at 2.99%.
“Falling mortgage rates improve housing affordability, which draws more buyers out of the woodwork and allows people to pay more,” he said. “That, in turn, leads to somewhat greater demand and stronger prices.
“If rates were to surge a few percent, and incomes and employment didn’t strengthen simultaneously, we’d see a rather unpleasant impact on prices.”
Comment: But rates will not surge a few percent. Even if they went from 3% to %5, it would not have a measurable impact – at least not in Toronto. Unemployment is down again, almost 1% now from 2008. So that is not a concern. Tell me where the magic bad things are coming from?
Nonetheless, Klump says, the evidence is that people educate themselves very well before undertaking huge debt, lessening some of this worry.
“I’m hearing from our realtors that before people sign an offer they know what it is they can afford, they’re not going out on the edge and grabbing more than they could afford long term.”
Ontario, B.C., settling down
CREA said national resale housing activity should be around 458,800 units in 2012, representing an annual increase of 0.3% compared to 457,305 sales in 2011. Higher demand in Alberta, Saskatchewan, and Nova Scotia is expected to offset softer activity in British Columbia, Ontario, and New Brunswick.
“Each region has its own economic dynamic, and that’s stronger growth in the Prairies right now, certainly more than Ontario and, to a minor extent, B.C.,” UBC’s Somerville said.
“Both B.C. and Ontario, or the Toronto condo market and B.C., had a recent period of accelerated activity, and now there’s a step back from that.”
Comment: What? There is no step backward at all in Toronto. Action was up over 12% last month and you call that a step back?
Klump agrees. He said sales activity in Ontario was trending up throughout 2011, alongside a spike in price in the second quarter, and CREA didn’t see that as being sustainable.
“What you’re looking at from a trends perspective is a pretty steady average price,” Klump said. “The spike is why we have a decline in average price this year for Ontario.”
Comment: And by Ontario he means everywhere that is not Toronto.
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Contact the Jeffrey Team for more information – 416−388−1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
—————————————————————————————————–
The high-risk game of low, low rates
David Pett, Financial Post
With Canadian interest rates now on hold for some time to come, the government may move to tighten mortgage rules again to keep the already hot housing market from bubbling over, says the chief economist of Canada’s biggest bank.
“As we go forward in an environment of lower rates for longer now, we may see another round of mortgage rule tightening,” said Craig Wright, chief economist at Royal Bank of Canada during a panel discussion on Canada’s economy at the Economic Club of Canada.
After Wednesday’s decision by the Bank of Canada to keep its key lending rate unchanged at 1%, it is now widely expected that interest rates will stay at uncommonly low levels well into 2012 or longer if the global economy continues to deteriorate.
Mr. Wright says Canada’s fast-growing housing market, which resulted in an impressive 6% increase in building permits last month, will start to slow in the months ahead.
Several factors boosting mortgage activity in the first half of the year, including the HST in Ontario and British Columbia, are becoming less important catalysts, he said, while consumer confidence about the economy and overall affordability are growing headwinds.
In a cooling scenario, he said it is unlikely that more stringent mortgage rules will be forthcoming.
However, if a moderate slowdown doesn’t take place as expected, it becomes increasingly possible that regulatory changes, including shorter amortization periods and an increase in the amount of mortgage insurance required, will be needed in the future to curb a growing appetite for credit.
“Lower rates make debt more attractive, but that is countered by the confidence shock that we are all feeling towards the economy,” he said. “So the jury is still out but [Ottawa] may end up feeling the need to tighten a little bit further.”
Part of the run-up that Canada has seen in personal debt levels over the past decade has largely been driven by mortgage growth that has coincided with easier access to credit.
More recently, concerns about rising levels of household credit have prompted Ottawa to tighten its mortgage rules
In fact, in January, Finance Minister Jim Flaherty announced three new changes:
— The maximum amortization period was reduced to 30 years from 35 years for governmentbacked, insured mortgages with loan-to-value ratios of more than 80%;
— The maximum amount Canadians can borrow in refinancing their mortgages was lowered to 85% from 90% of the value of their homes; and
— Government insurance backing on lines of credit secured by homes was withdrawn.
Mr. Wright said that even with these measures, mortgage rules are still much looser than they were 10 years ago.
He noted that the required downpayment used to be 10%, compared to 5% now, while amortization was previously a maximum of 25 years. Furthermore, the qualification for mortgage insurance had been 25% and is 20% today.
“There is still, if need be, some room to move back to where we were,” he said. “We may not need to go back there, but there is an option if we don’t see any moderation in debt going forward.”
While Canada’s mortgage rules may be looser than was the case previously, they have remained much more stringent than U.S. regulations governing home loans, said Sherry Cooper, chief economist at BMO Capital Markets.
Because of that, she considers Canada’s housing market to be in much better shape than it would be otherwise.
“Not only did Canada dodge the subprime problem, but when you look at the aggregate of equity in homes among Canadian households it is much higher than in the United States,” she said during the panel discussion.
She is also encouraged by the fact that Canada’s homeownership ratio is much higher than it is south of the border and statistics that show Canadians typically pay off their mortgages prior to retirement.
While there has been an inordinate rise in house prices in some regions of the country, notably in Vancouver and to a much smaller degree Toronto and Calgary, which has already seen a correction, Ms. Cooper doesn’t believe a massive housing bubble is going to burst, largely because much of the demand for Canadian homes is coming from foreign investors who aren’t reliant on mortgages to make their purchases.
“As anyone who has been involved in the housing market, there seems to be tremendous interest in our markets by foreigners who want to diversify their investment and see Canadian real estate as a positive and affordable – believe it or not – opportunity,” she said.
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Contact the Jeffrey Team for more information – 416−388−1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
———————————————————————————————————————
