Tag Archives: financial crisis
Brokers pursue mortgage break for first-time home buyers
Tara Perkins – The Globe and Mail
Mortgage brokers are pressing the federal government to make it easier for young people to buy their first homes, just as the spring sales season descends and Ottawa prepares its next budget.
Jim Murphy, the head of the Canadian Association of Accredited Mortgage Professionals, recently met with finance department officials in a bid to convince them that their efforts to cool the housing market have gone too far, especially when it comes to the impact on first-time buyers.
“March, April and May are the most important months for both new sales and re-sales,” said Mr. Murphy. “And the market is slowing.”
The government has deliberately taken measures to cool the growth of house prices and mortgage debt levels four times since the financial crisis, amid fears that it was heating up too quickly.
The most recent measures, which took effect in July, included chopping the maximum length of insured mortgages to 25 years from 30. All other things being equal, a shorter mortgage means higher monthly payments for the borrower.
Mr. Murphy and a number of other industry players say this rule change, coupled with stiffer lending guidelines that regulators have imposed on the banks, have made it too difficult for young people to enter the housing market at a time when prices remain high. While sales have dropped significantly in the wake of the July rule changes, prices have yet to follow suit.
Now Mr. Murphy is asking the government to resume its backing for insurance on 30-year mortgages, as long as the buyer can prove they could qualify for a 25-year mortgage. He is also pushing for an increase to the $750 tax break that first-time buyers receive.
The Finance Department declined to comment, but it is unlikely that Ottawa will take any such steps right now. Finance Minister Jim Flaherty signalled this year that he was pleased with the impact his changes have had so far, and wouldn’t mind seeing house prices come down.
And he took Bank of Montreal to task last week for its decision to cut the advertised price of its five-year fixed-rate mortgages from 3.09% to 2.99% (lower rates are available in the market, but that was the lowest posted five-year fixed rate among the largest banks), indicating that he continues to be worried about consumers racking up too much mortgage debt and inflating house prices.
Indeed, he went so far Friday as to pat other banks on the back for not following suit by dropping their posted five-year rates to such levels (customers can negotiate with banks and obtain discounts from the posted or advertised rates).
Some economists, such as Canadian Imperial Bank of Commerce’s Benjamin Tal, are cautioning that the housing market could rebound more quickly and to a greater degree than expected this spring after months of slumping sales. And the point at which consumer debt levels are likely to become a real issue for the economy is when interest rates finally begin to rise.
Phil Soper, the chief executive of real estate agency Royal LePage, supported Mr. Flaherty’s three earlier interventions in the market, agreeing it had become overheated, but thought the changes in July went too far and made it unnecessarily difficult for first-time buyers.
However, he suggested that, eight months on, the damage has been done, and so he is not pressing Mr. Flaherty to create new incentives for first-time buyers right now. The government might as well save those for when interest rates rise, he suggested.
“There is not an overwhelming cause from a public policy standpoint to provide further assistance to young people who want to own their own homes,” Mr. Soper said. “I think that might come, and we might be talking about that in a couple of years as it becomes more difficult for them.”
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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.
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Canada home prices seen falling, but not crashing
Andrea Hopkins – Reuters
Canadian housing prices will fall 10% over the next several years and home building will slow sharply in 2013, but the country’s recent property boom is not expected to end in a U.S.-style collapse, according to a Reuters poll.
Comment: That is a national prediction, not a local one for Toronto. With Vancouver dropping like a stone, it is easy to see how average prices could fall. But when something like 14 of 15 major centres are seeing price increases, I am not so sure where is drop is going to come from.
The survey of 20 forecasters published on Friday showed the majority believe the Canadian government has done enough to rein in runaway prices, preventing the type of crash that has devastated the U.S. market for years.
“This isn’t a sharp correction, this isn’t a U.S.-style correction, it’s just simply an unwinding of the excess valuation that was created by artificially low interest rates for a long period of time,” said Craig Alexander, chief economist at Toronto-Dominion Bank.
“I would emphasize that while a 10 % correction sounds scary, in actual fact, this would be a healthy outcome.”
U.S. house prices crashed as a mortgage crisis unraveled in 2008, triggering a financial crisis and leaving a trail of foreclosures, negative equity and financial hardship for millions of people. Housing prices in the U.S. have only begun to rise again this year.
On a national basis, Canadian house prices are expected to drop 10% over the next several years, and housing starts will fall more than 17% to 184,000 units by mid-2013, according to median results of the poll, which was conducted over the last week.
House prices have already begun to cool in some areas but nationally remain 23% higher than their trough in March 2009, according to a Canadian Real Estate Association index.
Comment: And this 10% is to happen over a few years. Right now we are up over last year, yet again. So let’s say we start from around 25% up from 2009, then in a few years, say 2016, then we are down 10% but still UP 15% over 2009. Explain to me how this is a bad thing.
Respondents in the Reuters poll said house prices will rise 2.0% in 2012 and fall 0.1% in 2013, according to the median of 18 forecasts, putting most of the losses at least two years away.
Comment: How do they predict a price drop while predicting prices are going UP an average of 1.9% in 2012-2013?
Median forecasts had Toronto prices rising 5.1% in 2012 and falling 1.3% in 2013. But respondents saw an eventual 5% fall from current levels. Vancouver prices were forecast to fall 2.7% in 2012 and 3.8% in 2013, with an eventual decline of 12.5%.
Comment: If Toronto prices fall at all in 2013 I will eat this blog.
As sales decline and prices fall, home builders will ratchet back on construction starts, the poll showed.
Housing starts, which notched a seasonally-adjusted annual rate of 222,945 units in the third quarter, will decline to 200,500 in the fourth quarter, 186,900 in the first quarter of 2013, and 184,000 in the second quarter of next year.
BITE OUT OF GROWTH
That 17.5% drop in new home building will take a bite out of Canada’s economic growth, fueled by the housing sector, consumer spending and government stimulus since growth slowed in 2009. But a strengthening global economy should help pick up the slack, Alexander said.
Not everyone is as sanguine. While economists at Canada’s major banks have consistently predicted a softening in prices and a slowing in housing starts, some independent analysts see a very hard landing ahead.
“The housing market is something to be very worried about,” said David Madani, Canada economist at consultancy Capital Economics in Toronto.
Madani, whose forecasts are included in the Reuters poll, has consistently predicted a 25% drop in prices and a plunge in housing starts to just 150,000 next year as builders grapple with too many homes and falling demand.
Comment: He has consistently predicted it and it has consistently NOT happened. I fact, prices rose 5-8% in the face of that “prediction”.
“The one symptom that housing bubbles always have in common is the over building, and I feel the banks play this down a bit,” said Madani, pointing to recent housing starts well above the 175,000 to 185,000 pace economists say is needed to keep up with population growth.
Comment: No one has yet been able to explain to me how the 5.5% annual price increase over the past 10-15 years is a bubble. How is that the same as the 127% jump of the late 1980s? Or the 60,000% jump in 6 months during the original bubble, the Dutch Tulip Mania? Prices in Toronto have not risen as much since 1996 as they did from 1987-1990.
“We’ve been building above 200,0000 for several years. And we know we’ve been building above demographic requirements because the evidence is in the inventory data – it’s high, it’s not low,” said Madani.
“The excesses are there, it’s plain and clear to see.”
Comment: What? We have nowhere near enough housing for the demand! That is why 100s of new condo sales centres move 80% or more of their units before shovels hit the dirt. We have bidding wars on rentals! We have investors crying because new condos are down 30% this year. With 100,000 people coming to the GTA every year, they need somewhere to live. Even with 200,000 starts NATIONALLY, we need fully half that in Toronto alone to satisfy demand. These are all real numbers, real data you can check for yourself. What does Capital Economics have but for a desire to get their name in the news?
Still, all 15 respondents who answered an additional question said they believe the Canadian government has done enough to slow the housing market and prevent a U.S.-style crash, as Finance Minister Jim Flaherty has argued.
RULE CHANGES HURT
Mindful of the U.S. boom and bust, the federal government tightened mortgage lending rules four times in the last four years to make it harder for home buyers to take on too much debt in their quest for a home.
The rule changes gradually shorted the maximum mortgage length from 40 years to 25 and also put limits on how much homeowners could borrow against their house, among other measures.
While interest rates are not expected to rise until mid-2013, the stiffer lending rules and government warnings about the high debt loads of Canadian households have helped cool the ardor of home buyers, with the hottest markets, including Vancouver and Toronto, already feeling a chill.
Sales of existing homes were down 15.1% in September from a year earlier, and were 6.5% lower in the third quarter from the previous three months, according to data from the Canadian Real Estate Association.
Prices, which lag sales, have started to come down as well. Prices for existing homes dipped 0.4% in September from August, according the Teranet-National Bank Composite House Price Index, but remain 3.6% higher than a year earlier.
Comment: You cannot compare month to month, as there are naturally yearly cycles with some months higher and some months lower. You can only compare the same month in different years.
Prices of new homes rose 0.2% in the month, the 18th straight monthly gain, and were up 2.4% on the year, according to Statistics Canada.
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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.
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Low mortgage rates not an invitation to ratchet up debt
Garry Marr – Financial Post
Don’t tell anyone — it seems we’re not supposed to talk about it too loudly — but mortgage rates have come crashing down again.
Ratesupermarket.ca says the fixed rate on a five-year mortgage has dropped to 2.94%, below the 2.99% rate that caused a furor earlier this year with Finance Minister Jim Flaherty warning banks not to get too aggressive with pricing.
“The record-breaking rate, offered in Ontario, appeared July 24 and is expected to return as the precedent has been set,” says Kelvin Mangaroo, president of Ratesupermaket.ca, who says his own surveys show the push is back on for a five-year mortgage.
Even the 10-year fixed-rate mortgage is getting more enticing, with a guaranteed rate of 3.76% for the next decade.
Vince Gaetano, a principal at monstermortgage.ca, says a number of lenders have quietly dropped back to 2.99%.
“The banks are not publishing anything yet but there are a couple that in certain situations will go to 2.99% on a five-year,” Mr. Gaetano says.
The real question is why rates aren’t even lower. The Bank of Canada may want consumers to take a tougher stand against their debt, but the bond market, which affects mortgage pricing, continues to offer record-low yields.
The spread between the posted rate on a five-year mortgage of 5.24% and a government of Canada five-year bond is almost 400 basis points — the highest it’s been since the financial crisis in 2008.
“I truly believe [the real estate] market has softened and the banks want to make more margin,” Mr. Gaetano says. “The volume is just not going to give them their profits.”
Farhaneh Haque, director of mortgage advice at TD Canada Trust, says there is definitely discounting or as she calls it, “relationship pricing,” but adds the bank’s costs are not based solely on bond yields.
“The cost of funds is impacted by liquidity premiums,” she says. “You don’t see that necessarily in the bond yields.”
There is also an ongoing threat from Mr. Flaherty of even tougher rules if the banks get too aggressive in their pricing.
“We want to make sure, in light of all the guidelines we’ve had from the government, that we are not getting into the price wars that the banks were in in the earlier part of this year,” Ms. Haque says.
The problem is these rates continue to be tempting for consumers, although the slowdown in housing sales in some major markets over the past three months indicates the lure may not be having the same effect.
But how do you say no to these rates, especially if you have a mountain of debt? This may be the best time ever to consolidate debt, if you can tame your spending at the same time.
It’s not clear consumers are doing that. Mr. Gaetano reports a rush to refinance, with many consumers pushing their home-equity lines of credit to 80% of their home’s value ahead of new rules from the Office of the Superintendent of Financial Institutions that limit that percentage to 65% for HELOCs.
Craig Alexander, chief economist at Toronto-Dominion Bank, said the bond market reflects the increased fear over Europe and the global economy. He says it can’t last.
“The level of yields don’t make any sense,” Mr. Alexander says.
“Traditionally, five-year mortgage rates have a tight correlation with government bond yields. We are in an atypical environment, the level of bond yield is so exceptionally low it doesn’t appear to be sustainable. If you think about it, after you strip out inflation, investors are getting a negative return.”
Mr. Alexander says there is no question that while investors face challenges in today’s interest-rate environment, debtors have great opportunity. But he worries that people will use this opportunity to ratchet up their debt.
“What we don’t want is the level of rates to encourage people to take on new debt,” Mr. Alexander says. “Don’t abuse [this opportunity], take advantage of it.”
That’s the message Mr. Alexander says consumers should take away from the current situation. It’s unclear if everybody will interpret the message of low rates the same way.
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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.
—————————————————————————————————–
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