8 Jan

Robust Canadian Jobs Report for December Tops Off a Blockbuster Year


Posted by: John Dunford

The highly anticipated December Labour Force Survey, released this morning by Stats Canada, surpassed forecasts breaking multi-year records. Canada’s jobless rate fell to 5.7% in December, its lowest level in more than 40 years, raising the prospects for a Bank of Canada rate hike possibly as soon as this month. The number of jobs rose by 78,600 bringing the full-year gain to 422,500, the best annual increase since 2002. While most of the jobs in December were part-time, nearly all of the net jobs created in 2017 were in full-time work (+394,000 or +2.7%).

Since September, the country added 193,400 jobs, the largest three-month gain since current records began in 1976. Canadian bond yields and the currency rose sharply in the wake of these data. The loonie surged to over 80.50 cents U.S. According to Bloomberg News, the odds of a rate hike at the Bank of Canada’s next meeting on January 17 soared to 70%, from 40% yesterday, based on trading in the swaps market.

The largest employment gains in December were in Quebec and Alberta. In December, 25,000 more people were employed in finance, insurance, real estate, and rental and leasing, following three months of little change. For the year as a whole, jobs increased by 3.5% in the goods-producing sector and by 2.0% in the services-producing sector.

Actual hours worked in December were 3.1% above year-ago levels, the fastest since 2010. As well, new data show that wages are finally accelerating having been stagnant for much of 2017. Wage gains for permanent employees accelerated to 2.9% year-over-year from 2.7% last month–another closely watched indicator for the Bank of Canada.




U.S. Jobs Report for December Moderates

Also released this morning were December nonfarm payrolls data for the United States. American employers added 148,000 jobs last month as the nation’s unemployment rate remained stable at 4.1%. December’s reported increase was less than the 190,000 expectation. Labour markets are at or very near to full capacity given the persistence of a meagre unemployment rate, which is likely limiting employment gains. December marked the 87th consecutive month of job growth, the longest streak on record and clearly in line with expectations that the Federal Reserve will continue to hike interest rates this year.

8 Jan

2018 forecast: Will the housing market crash by year’s end?


Posted by: John Dunford

 James Loewen believes the government has catalyzed the very thing it is trying to prevent with the recent B-20 changes, and the irony isn’t lost on him.

Loewen says that most borrowers will be stuck in the private channel, and will have to walk away from their homes. The resulting supply surge in tandem with diminished demand—the result of a reduction in buying power, estimated to be around 20%—will bring the housing market crashing down.

“It’s ironic because the government purports that they’re trying to prevent an economic crash, people walking away from their houses, but if you can’t qualify under these guidelines, which, definitively more people can’t, there will be more people walking away and selling their house,” said Loewen, broker and owner of Loewen Group Mortgages.

He added that B lenders got hit particularly hard because borrowers now have to qualify 2% above the prime rate. However, most won’t and will be forced into the private channel—a traditionally temporal solution that could have no end in sight for many borrowers.

“They will be inciting the very thing they’re trying to avoid, which is a collapse,” said Loewen. “If I couldn’t qualify at TD or Scotia, I’d go to Home Trust or Equitable for a slightly higher rate than the best rate, but now I probably won’t qualify for that mortgage, so I‘ll have to go private. The risk private lenders are taking is much lower than even six months ago, and we can’t bundle up to 85% loan-to-value inside these government guidelines, so there might not be a solution at all for the client and they might be forced to sell.”

Regarding increased regulation, Loewen doesn’t think that the industry will be subjected to any more in 2018—but, he added, that could change depending on Q1 real estate numbers. For that reason, he hasn’t ruled out an interest rate hike, either.

“The next logical step is for the government to impose or impede on private lending, but they’ve already indirectly affected private lending guidelines,” said Loewen. “The B market lit up over the last two or three years, but that’s hard now, so the private market is lighting up. There is more demand for private lending but there will come a period of time when people realize they can’t afford private money anymore.”

19 Dec

Government Will Harm Economy And Housing Sector, Claims Broker


Posted by: John Dunford

The real reason the government has introduced stringent mortgage stress testing, claims a mortgage broker, is because it wants Canadians to spend less money on mortgage payments and more on other segments of the economy.

“The government sees Canadians making their mortgage payments as a problem because they won’t spend their money in other sectors of the economy,” said Dustan Woodhouse. “If the economy contracts just a little bit, Canadians who have big mortgage payments will continue making them and won’t spend money elsewhere in the economy.”

The problem, according to Woodhouse, does not exist, but the government thinks it will.

“I really believe they’re trying to fix a problem that doesn’t exist. They’re fearful it will exist, but I genuinely believe the greatest threat to the Canadian economy and real estate sector is government overregulation. The government has made too many changes too fast. I’ve never seen government make changes at the pace they’re making them at, and with so little industry consultation. They’re not giving things time to settle in. I’m a little worried they’re pushing on the brake pedal harder than they realize.”

Moreover, the Office of the Superintendent of Financial Institution’s mandate, says Woodhouse, is to protect the stability of the banking system.

He also decried the scapegoating of foreign buyers, whom he says aren’t culpable for escalating unaffordability. With demand vastly outpacing supply, properties have become even hotter commodities than usual, and now the stress tests will put them even further out of reach.

“How is the government helping you by reducing your purchasing power by 20%, thereby reducing your ability to compete with foreign buyers—because foreign buyers don’t have to qualify under the same guidelines as you and I do,” he said. “You qualify for less today at a 3% interest rate than you could 15 years ago when it was 6%. This is the irony people don’t understand.”

Jennifer Souvanvong, a mortgage broker with Blue Pearl Mortgage Group, who’s licensed in Alberta and B.C., says she’s noticed restaurants and shops closing down in North Vancouver because it’s become too expensive.
“People can’t afford to live there because property values are too high, so shutting out buyers doesn’t make sense,” she said.

Ultimately, if B-20 backfires on the government Souvanvong says opposition parties will pounce and turn it into a hot-button issue in time for election season.

“Maybe the government backs off a bit if it negatively affects the real estate market,” said Souvanvong. “When election time comes this might be a hot topic. I think the opposition parties will use this as a platform because this affects everybody.”

15 Dec

RBC Says Housing, Economy Will Ease In 2018


Posted by: John Dunford

Canada’s strong economy is set to continue into 2018 but it – and the housing market – are set to moderate.

In its latest Economic Outlook, RBC says that although Canada’s economic growth will lead the G7 nations, it will fall from 2017’s predicted 2.9% GDP growth to 1.9% in 2018, followed by 1.6% in 2019.

“Canada’s robust growth in 2017 is likely to moderate somewhat in 2018 as key economic drivers shift, but we still anticipate the economy will continue to outperform its potential,” said Craig Wright, Senior Vice-President and Chief Economist at RBC.

The housing market was one of the key drivers of Canada’s economy in 2017 but for next year there will be a shift to business investment and government infrastructure spending.

The cooling of the housing market which has already begun in recent months will continue with mortgage underwriting rules tightening, and interest rates rising to 1.75% by the end of 2018 RBC forecasts.

All provinces are forecast to grow their economies in 2018 but generally at a slower pace than in 2017. However, RBC expects Saskatchewan and Newfoundland and Labrador to buck this trend with growth exceeding that of 2017.

12 Dec

Reaction To BoC Rate Hold


Posted by: John Dunford

The decision of the Bank of Canada to hold interest rates at 1% has left economists, lenders and homeowners guessing as to what will happen next.

Governor Stephen Poloz noted that inflation was slightly higher than expected, slack remains in the labour market, and the housing market is moderating as forecast.

However, he gave little guidance on when another rate rise may occur. Instead he said the BoC was cautious while noting that interest rates will need to rise over time.

Reacting to the news, CIBC Economics’ Avery Shenfeld said that rates could rise by just 50 basis points in 2018 even if the BoC decides to make an increase in January rather than CIBC’s forecast for April.

Meanwhile, Alicia Macdonald, principal economist of The Conference Board of Canada was more bullish: “…with the economy growing in step with the Bank’s forecast, economic capacity rapidly diminishing, and an acceleration in wage growth, we expect that the Bank will continue to gradually increase interest rates throughout next year.”

6 Dec

Liberals Hesitate On Home Buyers’ Plan Promise Due To Fears Of Fuelling Housing Crisis


Posted by: John Dunford

The federal Liberals are having second thoughts about a 2015 campaign promise out of concern that expanding the popular Home Buyers’ Plan would throw fuel on overheated housing markets.

An internal document suggests high housing prices are a key reason the Liberals don’t appear to be in a hurry to fulfil an election pledge that would enable Canadians to dip back into their registered retirement savings to help pay for a home.

The detail surfaces as policy-makers consider new measures aimed at cooling real estate markets and to slow rising household debt loads, which have climbed to historic levels.

During the election campaign, the Liberals promised to expand the Home Buyers’ Plan to allow those affected by major life events — death of a spouse, divorce or taking in an elderly relative — to borrow a down payment from their RRSPs without incurring a penalty.

The current plan enables first-time buyers to borrow up to $25,000 tax-free from their RRSPs to put toward the purchase of a home. The amount must be repaid within 15 years.

The Trudeau government recently signalled that its promise to modernize the plan was still in progress, but that it faced “challenges.”

The update was posted on a website the government created to track the tasks Prime Minister Justin Trudeau assigned to his cabinet ministers.

An accompanying explanation on the site says Ottawa has instead provided more support for families facing significant life changes, helped stabilize the real estate market by tightening mortgage rules and committed $11.2 billion over the next 11 years to support affordable housing.

A June briefing note for Finance Minister Bill Morneau adds more details about the government’s thinking on the Home Buyers’ Plan.

The document, prepared for Morneau ahead of his meeting with the Canadian Real Estate Association, recommends he answer questions about the status of expanding the plan by saying policies that increase home ownership by triggering more demand would help push prices higher.

The briefing, obtained via the Access of Information Act, also lays out the government’s concerns that low interest rates and rising home prices have encouraged many Canadians to amass high levels of debt just so they can enter the real-estate market.

“Policies to further boost home ownership by stimulating demand would exert more pressure on house prices,” says the memo, which also notes that CREA has recommended the government extend the plan to allow more borrowers more time to repay their withdrawals from their RRSPs.

“With respect to housing affordability, at this time, the government is prioritizing investments to support Canadian households that need it most.”

The briefing note also says: “High levels of indebtedness warrant proactive and prudent management of evolving housing-related vulnerabilities and risks.”

Is tapping your RRSP to buy a first home a good idea?: Mayers

The document also recommends Morneau reiterate Ottawa’s commitment to release a comprehensive national housing strategy in 2017.

The Liberal government unveiled its housing plan late last month, but home ownership only gets a passing mention in the strategy. The plan commits to spending billions to build up Canada’s stock of affordable rental housing — a strategy Social Development Minister Jean-Yves Duclos expects to put downward pressure on housing prices.

Organizations like the CREA, however, argue the government should be doing more to help more people make down payments.

The association, which represents more than 100,000 real-estate brokers and agents, is now lobbying Ottawa to create intergenerational RRSP loans that would give parents the option of helping their kids buy a home by allowing them to tap into their retirement savings. The group also wants the maximum withdrawal limit increased by $10,000.

6 Dec



Posted by: John Dunford

The highly anticipated November Labour Force Survey, released this morning by Stats Canada, surpassed all forecasts breaking multi-year records. Employers added a whopping 79,500 jobs last month, bringing the gains over the past 12 months to nearly 400,000. November’s data posted the most robust job market since the 2008-09 recession as the jobless rate plunged to 5.9% in November, down from 6.3% in October. Average employment growth of 32,500 per month over the last year is the fastest pace since 2007. The 5.9% jobless rate, was only lower for a single month before the recent recession—a time when the economy was operating beyond its longer-run capacity limits.
Employment grew across most industries led by manufacturing, retailing and education. Construction jobs increased for the second consecutive month. The employment increase in November was mainly among private sector employees, as both public sector employment and the number of self-employed was little changed.

The employment gain for November is the 12th straight, the longest since the 14-month span that ended in March 2007.

Some of the most substantial gains were in central Canada, with Quebec’s unemployment rate falling to 5.4%, the lowest level on record back to 1976, and Ontario’s at the lowest level since 2000 at 5.5% (see table below). The national jobless rate of 5.9% has fallen 0.9 percentage points over the past 12 months.

Great news for the consumer was the 2.8% November increase in average hourly earnings, up from 2.4% in October and the fastest rise since April 2016. Much of that increase has come in the last few months as wage growth accelerated sharply—finally a bit of evidence that tight labour market conditions are feeding through to wages. If that trend holds up, it will be hard for the Bank of Canada to remain on the sidelines much longer.

One piece of contrary evidence was a sizeable drop in average hours worked that retraced much of the gain seen in recent months. The Bank of Canada has flagged below-trend hours worked as a sign of labour market slack, but other indicators point to very tight job market conditions. The strength of the job market will no doubt impact the Bank of Canada’s assessment. The Canadian dollar surged on today’s news.

Q3 GDP Growth Slowed

The strong jobs market has been reflected in the rise in consumer spending, noted in another report released today by Stats Canada, helping to offset the slowdown in exports and housing. GDP growth in the third quarter slowed to 1.7%, down sharply from the 4.3% gain in the prior three months. This slowdown was expected as the Q2 pace of expansion was unsustainable. The Bank of Canada estimates that the longer-term potential growth rate is close to 1.7%.

GDP growth in Q3 continued to be concentrated in household spending with a stronger-than-expected 4.0% increase that built onto a 5.0% surge in Q2. Government investment spending also jumped higher, though, and business investment rose for a third straight quarter — albeit at a more modest pace than over the first half of the year. Offset came from a large, but expected, pullback in net trade.

Exports fell sharply in the third quarter subtracting 3.4 percentage points from the growth rate. The decline was mainly attributable to motor vehicles and parts (-9.0%), primarily passenger cars and light trucks. Imports were virtually unchanged.

Household spending represents a record proportion of the overall economy (see chart below). The compensation of employees increased 1.3% in nominal terms in the third quarter, a quicker pace than in the previous 11 quarters. Wages and salaries rose 1.9% in goods-producing industries and 1.1% in services-producing industries. Regionally, Ontario and Quebec continued to fuel wage growth in the third quarter.

Housing investment weakened, posting the first back-to-back quarterly decline in investment in residential structures since the first quarter of 2013. Ownership transfer costs, which reflect activity in the resale housing market fell sharply for the second consecutive quarter.

Monthly GDP data, also released this morning, were perhaps more encouraging than the quarterly data regarding near-term growth implications. September GDP rose a stronger-than-expected 0.2% (nonannualized) to more-than-retrace a 0.1% dip in August. That left somewhat stronger momentum at the end of the quarter than we previously assumed. The data are still pointing to a slowing in underlying GDP growth from the outsized pace from mid-2016 to mid-2017 but is also still fully consistent with the Bank of Canada’s view that growth will be sustained at a modestly above-trend 2% pace going forward.

6 Dec

Risks To Canadian Economy Remain Grave – BoC


Posted by: John Dunford

The Canadian economy’s most significant vulnerabilities remain to be inflamed housing prices and unprecedented household debt levels, according to the latest report from the Bank of Canada.

This is despite several signs that financial risks have begun to ease, the Bank’s study noted.

“Better economic conditions and several new policy measures support prospects for additional progress,” BoC noted in the report, as quoted by the Financial Post.

“Our financial system continues to be resilient, and is being bolstered by stronger growth and job creation, but we need to continue to watch financial vulnerabilities closely,” Governor Stephen Poloz said in a written statement released alongside the Bank’s November Financial System Review.

Read more: Why B20 is a blessing, not a curse

Canada’s economy saw the fastest growth rate among G7 countries with its 4% growth in the first half of 2017. The surge was driven in part by some fiscal stimulus measures introduced by Ottawa, along with higher business investment, improved exports, and consumption spending. However, this trend is expected to wind down by the end of the year and through to 2019.

Meanwhile, the rate of borrowing has increased by around 5% per cent compared to a year ago, significantly outstripping wage growth. Household debt levels have ballooned in response to outsized growth of real estate prices, especially in markets like Vancouver and Toronto.

However, the BoC report noted that recent developments might suggest that policy changes like mortgage stress tests have started to reduce Canada’s financial risks. The bank said that the tightened rules introduced by the Superintendent of Financial Institutions (OSFI) will restrict as much as 10% of prospective Canadian homebuyers, representing approximately $15 billion in loans every year.

The Organisation for Economic Co-operation and Development (OECD) agreed with the assessments in its November economic outlook, which warned that the red-hot housing market and burgeoning household debt levels remain key risks to the economy.

The OECD added that the impact of Vancouver’s foreign buyers’ tax has diminished, suggesting that Toronto’s tax could have a similarly limited effect on prices.

“Provincial government measures have also temporarily slowed house price growth, but some – notably Ontario’s expanded rent controls – risk discouraging the supply of new housing. Macro-prudential policies will need to be tightened further if rapid increases in house prices and debt resume.”

30 Nov

BoC Flags Risk From Low-Ratio Mortgage Loans


Posted by: John Dunford

The Bank of Canada has released its latest assessment of the financial system and has once again highlighted risk from mortgages.

While the overall tone of the report is positive – “Our financial system continues to be resilient, and is being bolstered by stronger growth and job creation, but we need to continue to watch financial vulnerabilities closely,” said Governor Stephen S. Poloz – mortgages are a notable worry.

The governor said that there has been a shift in mortgage activity with an improvement in the quality of new high-ratio mortgages (downpayment less than 20%) but an apparent rise in low-ratio loans being issued to highly indebted households.

The BoC says that the tighter lending rules which come into force in just over a month are expected to mitigate that risk over time.

The bank also expects the policy measures taken to cool the housing markets in the Greater Toronto Area and Greater Vancouver Area should begin to ease activity, noting that price increases are continuing to be driven by the growing economy and tight supply of homes.

27 Nov

With B20 Around The Corner, Industry Wary Of Coming Year


Posted by: John Dunford

The once-hot real estate market cooled considerably in 2017, and with Guideline B20 on the horizon, all indications are that it will stay that way.

It is expected that first-time homebuyers will bear the brunt of B20 more than anybody else, and according to Sherwood Mortgage Group’s president, that could result in a noticeable decline in market activity.

“It will be isolated to certainly individuals, mostly first-time buyers,” said Anthony Contento. “Will there be a drop? Possibly. I’d anticipate anywhere between five and 10%, but our real estate will continue to surge, interest rates will continue to stay low, and we’ll make up the difference on the majority of the other purchasers out there.”

Ontario’s Fair Housing Plan, introduced in April, slowed down the overactive market, which might have been necessary from a consumer standpoint, but it’s remained inert ever since.

Contento says that, under the circumstances, things could have been worse.

“We didn’t see much increase this year, with the changes that came about in the mortgage industry,” he said. “Given the changes, I’m quite happy with the way we did. Consumer confidence dropped throughout the year, and that was a bit of an indication that we’d have a drop, or flatline, in sales, so I’m pleased with the way we’ve performed. I wouldn’t say I’m ecstatic, but certainly pleased we haven’t lost much.”

Mortgage Edge’s Owner, John Bargis, says they’ve had a strong year, even if conditions have been less than ideal. In particular, he noticed monoline lenders being muscled, however, he believes they’ll show resilience in the face of B20.

“The year was really good,” said Bargis. “There was a redistribution of volume between lenders. We managed to still support our monoline lenders, although there was a noticeable shift in volume to balance sheet lenders. We also saw a more aggressive presence from the credit unions as well.

“There are certainly going to be further challenges. Monolines will be able to retain a good chunk of their business as a result of B20, because of more stringent qualifications for anybody looking for a refinance or a switch in transfer, but they should be able to retain a good bit of their mortgage book.”

Bargis thinks the government is trying to regulate more industries, and while he wouldn’t rule out further intervention into the mortgage industry in the near future, he hopes for more transparent consultations.

“Do I think the government should have consulted more with the industry? Absolutely—that’s where they fell short,” he said. “A lot of rules they’re implementing are certainly favouring the banks, for sure. You can see that in the numbers. Going forward in 2018, there needs to be awareness that strength in lender relationships is critical for the success for any brokerage.”

The banks of mom and dad, however, aren’t getting any regulatory breaks, and Contento thinks they’ll be under even further strain before the year’s over.

“With the changes that are coming about, it looks like there might be a rush until the end of the year with a lot of people anticipating what it might mean for them, given that there are still a lot of first-time buyers in the market and it will probably affect them more than anybody else,” he said. “The bank of mom and dad will probably have to dig deeper into their pockets to help them.”