Tag Archives: mortgage amortization
What one banker is telling international investors about the Toronto real estate market
Carolyn Ireland – Globe and Mail
I can’t imagine what it’s like to be a Bank of Nova Scotia economist facing a room full of foreign real estate mavens.
Investors around the globe are fascinated by Canada’s housing market. When Scotiabank vice-president Derek Holt did the rounds of U.S. cities last week to present Canadian Housing in a Macro Context, he must have been besieged.
Canada’s housing market is stretched but there are lots of mitigating factors that should quell some of the anxiety floating around, according to Mr. Holt, who narrows in on “Why it’s Different from the United States”.
Interest rates in Canada will stay low a while yet according to Mr. Holt and Dov Zigler and Adrienne Warren, who put together some of the forecasts for the road trip. They add that inflation won’t challenge Bank of Canada targets while growth in wages remains weak.
Household debt growth is already cooling, they add, and the central bank shouldn’t push that too far. For one thing, other factors – including the strong Canadian dollar, real wages and regulatory tightening – are already doing the work of the Bank of Canada.
Still, the economists point out some of their worries: Canada’s record-high rate of home ownership has surpassed the rate in Australia, the United Kingdom and the United States, Canada has overshot the United States on average house prices, and the ratio of insured mortgages to uninsured has swelled.
Confidence should be bolstered by the fact that the sellers’ market of the past few years is returning to a better balance between buyers and sellers. There’s no evidence of too much building in the single-family house market, they add, and the rules surrounding long mortgage amortization periods and paltry down payments have already been strengthened.
As for the number of cranes filling the sky in cities such as Toronto, Montreal and Calgary, there are plenty of things driving the demand for high-rise condominium units, say the economists. They point to the fact that condos are more affordable and provide more to choose from than single-family houses. People are moving here from overseas and those who already live here are changing their lifestyles. There’s a trend to urban intensification, vacancies for rental units are tight, and investors are still keen to own condos.
But the economists do note some “pockets of concern”: Vancouver has seen a jump in the inventory of unsold condos compared with the long-term average, while Calgary’s condo market is not lean either. Toronto’s condo boom masks the shrinking amount of building in the market for detached and semi-detached houses, they add.
As for why Canada is different from the United States, the economists look at stronger household finances on this side of the border. Canadians have more home equity and more real estate assets.
Meanwhile, the country’s diversified economy means that economic shocks – when they do hit – never hit all of the local housing markets in various cities in the same way.
Canada’s banks are strongly capitalized and there is far less shadow banking than in the United States. That revolving-door-financing so popular south of the border is not prevalent here.
Canadians don’t default when house prices correct: In Toronto and Vancouver since the late 1980s, mortgage arrears have barely budged even when prices dropped.
The chart showing average existing home prices as a multiple of income per capita is particularly striking: While the line plotting the U.S. numbers turned downwards back in 2006 or so, the Canadian trajectory has been mostly upwards since 2001.
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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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Housing recovery is worth nurturing
Stephen Dupuis – Yourhome.ca
Just before the holidays, I had an opportunity to do a television interview on a building site in Markham. In the brief time I spent walking about the site with the reporter, the word “jobs” kept coming up over and over.
Never mind the gorgeous elevations of the finished homes – it was the homes under construction that were catching our eyes that day. Everywhere we looked, there was so much activity that the camera-woman kept exclaiming about the great footage she was getting in support of the story.
The topic of the interview happened to be Finance Minister Jim Flaherty’s musings about slowing down the real estate market by increasing the minimum down payment and or reducing the maximum mortgage amortization period. In fairness, Flaherty didn’t say he was going to slow down the market. What he said was “there would have to be clear evidence of an asset bubble in residential real estate in Canada, which there is not right now, for the government to take steps.”
Still, the fact that the finance minister weighed in on the subject was cause for concern to many of us in the industry. After all, it was barely a year ago that builders were fearing a prolonged real estate bust. Although the bust was short-lived, the relative recovery is far from firmly established and builders are cautiously optimistic at best.
In the context of a very tentative recovery and in the midst of all the federal stimulus money being invested in the name of jobs, one would think that any sector that is creating jobs – like the new homebuilding and renovation sector is – would be encouraged, not put on notice.
Getting back to that construction site, the sights and sounds of the workers was a joy to see and hear. The framing carpenters were going full tilt with their saws and power nailers. A forklift roared by with a load of lumber. We leaned on a pile of roof trusses, which were manufactured off site. Everywhere there were skids of brick made by workers at a Hanson plant in the Greater Toronto Area. A dump truck backed up with a load of crushed stone for the driveways. Jobs, jobs and more jobs.
Considering that we were on site in the early stages of construction, there are so many workers yet to come to those homes to do the finishing work. Roofing, bricklaying, drywall, flooring and painting – all done by skilled workers who rely on a healthy housing industry for their livelihoods.
And I haven’t even mentioned the workers employed off site making the windows, doors, toilets, sinks, cabinets, countertops and all the other products that go into a newly built home.
So when the reporter asked me point blank what I thought about any move to artificially slow down the housing market, my honest answer was that the housing recovery was something to be nurtured, not shot down just as it was getting going. I summed it up by saying that in my view, jobs can never be a bad thing. I’m sure all the workers on and off that housing site would agree.
Thanks to Patrick O’Hanlon of Kylemore Homes for granting us access to the West Village site in Markham. Also, congratulations to O’Hanlon and all the builders for all the risks they take to create jobs for so many men and women while fulfilling the home ownership dreams of new homebuyers in the GTA.
Stephen Dupuis is president and CEO of the Building Industry and Land Development Association. The views expressed are those of the president.
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Contact the Jeffrey Team for more information - 416-388-1960
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Don’t clamp down on home mortgage regulations
Federal Finance Minister Jim Flaherty said late last week that the government is ready to make changes in mortgage requirements if the current boom in housing sales starts turning into a bubble.
By Derrick Penner, Vancouver Sun
The mere hint that federal Finance Minister Jim Flaherty might step in to tighten mortgage requirements to cool an overheated real estate market has sparked a lobby urging him not to do it.
Steps to raise down-payment requirements and shorten mortgage amortization periods could do more damage than the problem Flaherty is trying to stem, the Mortgage Brokers Association of British Columbia (MBABC) said Wednesday.
Late last week, Flaherty, in an interview with Canwest News Service, said the government is watching and remains ready to make changes in mortgage requirements if the current boom in real estate sales becomes a bubble.
Low mortgage rates, Flaherty said, were helping to push home prices up, and he is ready to act on down payments and mortgage amortization periods if that trend gets out of hand.
However, MBABC president Joe Santos cautioned Wednesday that much of the heat Flaherty is seeing in the market has already been spent and that the finance minister should wait before making any decisions on mortgages.
“We feel the market is going to self correct,” Santos said, “just because the affordability [of housing] isn’t there anymore, and really, the economic news isn’t that strong.”
Santos said the pent-up demand for real estate from the buyers who fled the market during 2008′s sales collapse, combined with buyers jumping into the market sooner than expected to take advantage of record low mortgage rates, that have driven the buying binge and driven prices up over the last half of 2009.
“But we’re into December now, and things have slowed considerably,” Santos added.
Going into 2010, Santos said the association’s expectation, in keeping with forecasts from the B.C. Real Estate Association and Canada Mortgage and Housing Corp., is for sales to ease off, supplies of new listings to increase and prices to edge up more modestly.
Santos said one fear in the industry is that if Flaherty were to step in too soon and clamp down on mortgage qualification criteria, that would put an unnecessary dent in the market.
“There are a lot of things that could happen to soften up the economy,” he added, “and [a slowdown in real estate sales] is one of them, because real estate and construction have a big impact on the economy.”
However, the concern on Flaherty’s side is that the recent surge in real estate sales, fuelled by rock-bottom mortgage rates, is encouraging Canadians to take on levels of debt that they won’t be able to maintain once rates rise.
That is the warning Bank of Canada Governor Mark Carney has sounded on a couple of occasions in December.
Carney, in a regular Bank of Canada discussion document and in a speech to an elite Toronto business audience, noted that the amount of debt that Canadians are taking on is increasing just as the economy is coming out of recession.
That amount of debt, he added, makes consumers more vulnerable to a financial squeeze once interest rates, set at low levels to try and stimulate the economy, rise.
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Contact the Jeffrey Team for more information - 416-388-1960
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