Four major metropolitan areas show strong evidence of problematic housing market conditions, according to a report from the Crown Corporation.

CMHC’s Housing Market Assessment (HMA), released Thursday afternoon, points to “strong evidence” of problematic conditions in Toronto, Winnipeg, Saskatoon, and Regina.

According to the report, Toronto’s analysis is a reflection of price acceleration and overvaluation; the other markets show evidence of overvaluation and overbuilding.

Other markets, meanwhile, are at risk of overvaluation.

“The most prevalent issue detected in 11 of the 15 centres covered by the HMA is overvaluation. The evidence of overvaluation has increased since the previous assessment in Toronto, Vancouver, Montréal, Edmonton, and Saskatoon as price levels are not fully supported by economic and demographic factors,” said Bob Dugan, CMHC’s Chief Economist. “Problematic overvaluation conditions in local housing markets could be resolved by moderation in house prices and/or improving economic conditions.”

Noticeably left off the list of problematic markets is Vancouver.

“The HMA points to weak evidence of overall problematic conditions in Vancouver, though we are now detecting moderate evidence of overvaluation,” CMHC said in the report. “However, overheating, acceleration in house prices and overbuilding are not a concern in this market.”

The analysis looked at the national housing market as well as 15 major metropolitan areas — Vancouver, Victoria, Calgary, Edmonton, Regina, Saskatoon, Winnipeg, Toronto, Hamilton, Ottawa, Montréal, Québec, Moncton, St. John’s and Halifax.

Brokers – and the industry – will have to wait a little long for the expected rate hike.

“To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4% target range for the federal funds rate remains appropriate,” the Fed said in a release Wednesday afternoon. “In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2% inflation.”

According to the Fed, economic activity has been expanding at a moderate pace and household spending and business fixed investment have been increasing at “solid rates.” Further, unemployment remained steady.

However, the pace of job gains has slowed since the last meeting in September.

“Inflation has continued to run below the Committee’s longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports,” the Fed said. “Market-based measures of inflation compensation moved slightly lower; survey-based measures of longer-term inflation expectations have remained stable.”

The Federal Reserve said its current policy will continue to help the economy improve.

“The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction,” the Fed said. “This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.”

However, the Fed also said it may maintain a lower rate than previously expected.

“When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent,” the Fed said. “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”

It is no surprise to anyone that the Bank of Canada maintained its target overnight rate at 1/2 percent today, judging that the underlying trend in inflation continues to be about 1.5 to 1.7 percent. Even before the landslide sweep of the Liberal Party into power, assuring a more stimulative fiscal policy next year, the Bank was widely expected to stand pat for the foreseeable future.

The Monetary Policy Report (MPR), released today, was written before the election results were known and its economic projections do not reflect the impact of the Liberal Party fiscal proposals. The Liberals will introduce a more proactive fiscal policy, reducing the reliance on monetary policy to do all of the heavy lifting in boosting economic activity. The Liberals won on the platform of running budget deficits over the next three years to boost economic growth, which has been languishing despite repeated reductions in interest rates.

The Bank of Canada now estimates third quarter growth to have been roughly 2.5 percent with a slowdown to 1.5 percent growth in the current quarter. This would put this year’s real GDP growth at a mere 1.1 percent–well below the 2.4 percent pace last year and underperforming the growth in the U.S. by a wide margin. Canada’s economy has been hit hard by the massive decline in oil prices. But, as well, Canadian exports are no longer as sensitive to an acceleration in U.S. growth as they once were, largely reflective of the contraction in the relative importance of the Canadian automotive sector.

The Bank has revised down its forecast of global growth in 2016 and 2017. For Canada, the Bank says that “lower prices for oil and other commodity prices since the summer have further lowered Canada’s terms of trade and are dampening business investment and exports in the resource sector. This has led to a modest downward revision to the Bank’s growth forecast for 2016 and 2017.” Before taking any additional fiscal stimulus into account, the Bank now projects real economic growth to be 2.0 percent next year and 2.5 percent in 2017.

It is my view that growth will exceed these forecasts by as much as 0.5 percentage points owing to the likely mix of government spending increases and middle class tax cuts, although the details and timing of these actions are yet to be nailed down. In consequence, the Bank of Canada easing cycle has ended and rightly so. The Bank has run out of bullets with overnight interest rates so close to the zero lower bound. The Bank will stand pat for at least the next year regardless of U.S. Federal Reserve action. The Fed is widely expected to start liftoff in the next few months.

Thus, Canadian interest rates have bottomed. Most particularly, mortgage rates have bottomed. The growth in mortgage lending has likely peaked, or will very soon. Bank of Canada data show that the growth in the number of mortgages has slowed this year, although dollar volumes continue to accelerate owing to house price increases. With 70 percent of Canadian households already owning their own homes and housing affordability declining with the bottoming in mortgage rates and the rise in house prices, lending activity will inevitably slow as will the rise in the price of homes, which has continued strong in Vancouver and Toronto, particularly in the single-family sector.

This is a good thing, particularly since the slowdown will be gradual and measured. We will not experience a housing crash as some Cassandras have predicted for decades. We will, however, see a slowdown in the pace of house price appreciation, especially for the condo sector, where overbuilding is most evident, unsold vacancies have risen, and–perhaps, most importantly–a pick-up in the construction of rental housing is in train in Toronto. Rental vacancy rates in Toronto and Vancouver are extremely low–roughly 1-1/4 percent–despite the enormous increase in condo construction in recent years and record investor-held condo rental supply. Single-purpose rental construction has been all but dead for decades in both cities given rent controls and other restrictions.

However, currently, demand fundamentals are so favorable and capital availability from major institutional investors is so rich that there is a burgeoning sea change in rental construction. Developers and institutional investors are turning to the rental market for new opportunities. According to media reports, the number of new apartment units under construction in Toronto is hitting a 25-year high. Urbanation Inc., a real estate research company, reports that there were 26 apartment buildings under construction in the Toronto area in the third quarter. Developers have proposed another 43 rental buildings containing more than 10,000 units. Reports also suggest that developer and investor interest in rentals is also nascent in Vancouver, Montreal, Calgary and Ottawa. More specifically, the Globe and Mail reported on October 15th that:

“Riocan Real Estate Investment Trust, one of Canada’s largest retail landlords, has one rental building under construction as a joint venture in uptown Toronto and is proposing to build six more. Insurance companies Great-West Life Assurance Co. and Sun Life Financial Inc., along with Cadillac Fairview Ltd., the real estate development arm of the Ontario Teachers’ Pension Plan, and private equity firm KingSett Capital are all either building or proposing new rental construction in the city.”

The high price of homes is pushing people into the rental market and as the cycle of extremely low and declining mortgage rates ends, more people will rent and do so for longer. Land and construction costs are now rising faster than the price of new condos, providing the economic backdrop for a coming slowdown in condo construction and improving fundamentals for rental markets.

Make no mistake, I am not suggesting that mortgage rates will rise rapidly or that a U.S.-style housing and mortgage crisis will occur. Canadians are not subprime borrowers and household balance sheets for the majority of homeowners are rock solid. Having said that, however, roughly 10 percent of Canadian home-owning households have high enough debt servicing costs relative to income that they are vulnerable if mortgage rates were to spike. The Bank of Canada has expressed repeated concern about this constituency and the lenders are well aware and cautiously prudent. I expect mortgage rates to edge up only gradually. Inflation remains quite low and Canada’s public finances are sufficiently sound to easily finance proposed budget deficits.

A gradual deceleration in condo appreciation is a good thing for sustained financial stability.

Brokers can breathe a sigh of relief, following Stephen Poloz’s latest comments on what role the central bank should play in setting economic policy.

“The Bank of Canada’s view is that monetary policy should be the last line of defence against threats to financial stability, behind the joint responsibility of borrowers and lenders, appropriate regulatory oversight within the financial sector, and sound macroprudential policies,” Governor of the Bank of Canada Stephen Poloz said during a speech in Washington at the National Association for Business Economics over the weekend.

That less-is-more stance will be welcomed by brokers, many of whom struggled following aggressive mortgage tightening by the government over the last few years.

Those, of course, included lowering amortization periods, lowering loan-to-value maximums, and limiting the maximum gross debt service ratio.

Poloz also said it isn’t the role of monetary policy to protect individuals from making bad choices. Still, he acknowledged macroprudential policies, especially in the housing sector, have been effective.

“The International Monetary Fund and several central banks—including the Bank of Canada—have … found that some macroprudential policies, such as limits on mortgage loan-to-value ratios and increased capital weight on bank holdings of mortgages—can moderate the growth of credit and house prices as well as improve the average creditworthiness of borrowers,” Poloz said. “The impact of recent macroprudential tightening in Canada, which was aimed primarily at rules for insured mortgages, appears to support these findings.”

Bank of Canada governor Stephen Poloz spoke over the weekend about the rising levels of household debt and the effect that monetary policy has had on house prices. Mr Poloz said that using policy including interest rates to address the increasing debt of many Canadians should be the last resort. With the ratio of debt to disposable income rising in the second quarter to a record high of 164.6 per cent the governor said that the central bank is watching the situation closely but noted that “there is more to the story than the debt-to-income ratio.” It is unlikely that there will be any further cut in interest rates when the bank makes its decision on October 21. Many analysts are expecting that the next move will be an increase in rates with mortgage repayments edging higher during 2016.

NEW YORK _ A voting member of the Federal Reserve’s policy committee said Friday that he believes the economy is on a satisfactory track and that an increase in interest rates is likely to be appropriate in either October or December.

Dennis Lockhart, president of the Fed’s Atlanta regional bank, said the economic data has been giving off mixed signals and there is more ambiguity in the data than there was a few weeks ago.

Lockhart said he will be watching consumer activity closely before he makes his decision on whether to raise rates at one of the Fed’s two final meetings of 2015.

“I continue to feel that cumulative progress is consistent with liftoff relatively soon,” Lockhart said his remarks to the annual meeting of the Society of American Business Editors and Writers.

The Fed has kept its key interest rate at a record low near zero since December 2008.

Lockhart’s views on the timing for a rate hike have been closely followed because he is one of five regional bank presidents with a vote this year on the Federal Open Market Committee, the panel of Fed bank presidents and Washington board members that meets eight times a year to set interest rate policy for the central bank.

The next meeting of the committee will be Oct. 27-28 and the final meeting of the year will occur on Dec. 15-16.

Many private economists believe that a weak jobs report for September released last week makes an October move unlikely, but many are still forecasting a rate hike in December.

When the Fed starts raising rates, something it has not done in nine years, it will mean higher rates for consumer and business borrowers. But central bank officials, including Fed Chair Janet Yellen, have stressed that the rate hikes are likely to be very gradual, meaning rates will remain near historic lows for some time.

Many had expected the first rate hike to occur in September, but minutes of that meeting released Thursday revealed concern among Fed officials about a significant slowdown in China, which roiled markets in August. The thought was that China’s problems could have a more severe impact on the U.S. economy than they had forecast. The Fed voted 9-1 at that meeting to keep rates unchanged.

Lockhart said that trying to interpret the recent twists and turns in the economy has been like riding a roller-coaster.

“The ambiguity of the moment reinforces the need to closely watch the vital signs of the economy over the coming weeks to determine if the outlook has changed,” Lockhart said.

Before the December meeting the Fed will have data on the October and November employment numbers, inflation data for September and October and the first two estimates for overall economic growth in the third quarter, Lockhart said.

Data on consumer spending, he said, will be the most important.

The last employment report before the October 19 federal election has to be disappointing for the Harper campaign. The unemployment rate edged up to 7.1 percent–slightly higher than the 7.0 percent posting in August–and employment grew a mere 12,000, in line with modest expectations. At least job seekers must be a bit more optimistic as the number of labour force participants increased last month–some discouraged workers resumed their job search. Another negative note was sounded as part-time employment rose by 74,000–not a good sign–which was almost offset by a disappointing 62,000 decline in full-time employment. The number of self-employed workers increased, public sector employment was down and the number of private sector jobs was little changed.

This rounds out third quarter employment growth at only 31,000–below the meager 32,000 gain in Q2 and the 63,000 rise in Q1, neither of which were stellar quarters. In September, all of the net job growth was among people aged 55 and older and was little changed for other demographic categories. Clearly, many boomers prefer to continue working either by necessity or choice (probably a combination of both).

Employment was up in British Columbia and Alberta and down in Ontario.

The Bank of Canada’s next rate decision is scheduled for October 21. Nothing in this report is likely to trigger a rate cut. Meantime, yesterday’s release of the U.S. Federal Reserve’s policy committee minutes indicated that the Fed was in no hurry to raise rates. With the disappointing U.S. September jobs report released last week, expectations of an October Fed rate hike have dissipated and many expect the Fed to remain on the sidelines for the remainder of this year.

This, and a recent surge in oil prices, have spurred a dramatic rise in the Canadian dollar to over 77 cents. Today’s report, however, will undoubtedly take some of the steam out of the loonie’s flight. Stock markets have had a great week on news of the Fed’s reluctance to raise rates. Odd, because stock markets sold off following the September Fed decision to delay lift-off. Markets, as ever, are fickle.

Top 4 Reasons Why a Variable Rate Mortgage Can Put You Farther AheadThe general consumer will be hard pressed when left to their own devices to shop on their own for their next mortgage, especially if they visit with one of the BIG banks. Typically they will talk about their most popular and profitable product, the 5 year FIXED rate mortgage. If you don’t know to ask for anything different, that is what they will recommend for you.

Working with a professional mortgage broker, the insight and value we can provide will help you not just get a mortgage, but build a personal home loan strategy to help you get farther ahead down the road, to better reflect you future needs and goals.

So here are the TOP 4 reasons why you need to look at a variable rate type mortgage product.

1) It’s always a cheaper interest rate: The current GAP between the Best in Market (BiM) fixed rate and BiM variable rate mortgage is a difference of = 0.60%— for the Average Canadian Mortgage Balance ($310K), that’s a savings of $159.57 that you don’t have to pay to the BANK for interest each month. Over the full 5 year term, you have saved over $9.5K in interest  – should nothing change in the prime rate (breaks down to just $29.70/month for every $100K borrowed).

2) It’s always a better monthly P+I repayment distribution which helps YOU pay down your mortgage loan balance quicker, and in effect, again pay less interest to the banks.

Variable Rate

So –  which product’s monthly payment do YOU want to pay for principal? 59.32% of the lower payment’s monthly amount to principal or 51.15% of the higher payment’s monthly amount to principal?

3) More flexible contract terms, and cheaper to get out of if you need to. To break this type of mortgage contract the penalty calculations are SIMPLE– just 3 months interest calculated on the balance remaining, for the term remaining.

The average Canadian will do something with their contracts after the 3 yr mark so if you owed $281K after 36months of this contract, then your penalty to break about $1,500.

Whereas the FIXED is a very complicated math equation, with fine print, and potential claw backs on the discounts given up from. In the opening contractual terms, you agreed to pay them the full interest of $38,612. After 36 months, you may have paid the majority of that to them, but they will want the rest to full term – it is this calculation that can be quite severe.

YOU can always do a SWITCH into the remaining term fixed as well, should you wish to take that route – with additional costs. Most VRMs are portable, meaning if you don’t need any new money for your next purchase. You can take that existing contract with you to your new property.

4) Banks are NOT going to increase your VRM payment severely…. MYTH— you will have a legal contract term outlining the math equations associated with the Bank of Canada overnight prime lending rate. Most banks have a similar prime. Right now, (as of the last announcement BoC announcement on September 19, 2015) prime is 2.50% and holding…. most internal bank prime rates are now 2.70%. The discount associated with their prime is what they are in control of for the mortgage variable rate offering… BUT once you sign your five year contract that math equation WILL NOT change in the term. The only thing that MAY change is the Federal Government’s Regulated BoC Prime lending rate, and that is capped to a max of a quarter of a point (0.25%) as to not trigger a negative effect in the larger economy. A 0.25% increase (or decrease as we have seen twice this year) for every $100K borrowed is just a change of $12.24/month, which is manageable. Most lenders take up to 90 days to do the administration to change your interest portion of your monthly payment, which gives you enough time to speak with your mortgage agent to help decide if you want to SWITCH to a fixed. (no costs to do that)

Since 2005, the Bank of Canada Rate hasn’t changed much. Back then, it was 2.50%, and lenders had same as their internal prime rate. The Federal Government promised to keep rates low, and from June 2007 to July 2009, they froze that rate to a ZERO increase. We have only seen two increases since then, bringing the prime up to 3.00%, and on December 2010, the Feds again froze the rate, which resulted in NO adjustments until January 2015, when they opted to DECREASE the rate by 0.25%, down to 2.75 and again a second decrease in July 2015 to where we are now. The September 19 announcement has said they will keep rates at a zero increase for some time to come.

Knowing it’s an election year, it’s not likely that the politicians are going to mess around with people’s money — they want their votes… and frankly after the election, whoever the new minister will be…. will take some time to get up to speed in their new duties of that portfolio… so don’t expect much change for the next year. This was reiterated by Dominion Lending Centres’ Chief Economist, Dr. Sherry Cooper, at our most recent conference.

Conclusion: Overall effect of using the variable rate contract is this:

More flexible product, with a lower monthly expected payment; better redistribution of that payment to principal, resulting in a lower end balance to renegotiate in five years time (should nothing happen to the Prime in that term) AND if you want to be conservative, and have a set payment for your household budget then… why not use the lower VRM product and make the FIXED payment.

EVERY additional dollar you put down per month – is now all principal – reducing our overall loan, and now reducing the overall interested they CAN charge you in term.

… or… better yet… why not set that monthly payment difference aside into a TSFA account, and once a year, make a decision to either invest it, or pay down your mortgage balance, or do both.

Working with Dominion Lending Centres is not just about shopping for the BEST rate… it’s understanding the variety of products that are offered, and how best they can assist you in your own goals.

Mortgage broker Toma Sojonky says a recent move by lenders to prune their discounts to the prime rate for new variable rate loans has borrowers pausing and considering their options. And combined with fixed rates drifting lower, some borrowers with variable rate mortgages are starting to make the switch and lock in their loans.

“Variable-rate clients who touched base in the spring and vacillated are now calling back with instructions,” said Sojonky, an adviser with Verico Paragon Mortgage Group in West Vancouver, B.C. “We saw fixed rates begin to inch up in the summer, only to drift down again recently – and some clients are pouncing in reaction.”

According to RateSpy.com, the best five-year fixed rate in Ontario was about 2.28%, while the best five-year variable rate mortgage was 1.75%.

That gives the variable-rate mortgage just a 0.53 percentage point advantage over the fixed-rate offering and if the Bank of Canada starts to boost its key interest rate next year, that advantage will shrink even smaller.

When the Bank of Canada cut its key interest rate twice this year, borrowers with loans or mortgages linked to the big bank prime rates benefited, seeing their interest rates move lower.

However, if the economic recovery remains on track, many economists expect the central bank’s next move on interest rates will be to hike its overnight rate target, which will likely result in higher rates for variable-rate loans and mortgages.

“If you’re only looking at the interest rate spread, then it probably makes sense to take a five-year fixed if you think there is any likelihood of the Bank of Canada increasing rates any time soon,” said Jason Scott, an Edmonton mortgage broker with TMG The Mortgage Group.

What Is a Mortgage Broker? One thing Canadians have in common is that most of us are paying off a mortgage.

The mortgage market can sometimes be confusing. There are a vast array of choices – open, closed flex down, equity take-out, cash back, and of course the rates themselves. While we would not attempt to try to muddle through the intricacies of insurance or investments without expert help, we will often go it alone when it’s time to get a mortgage.

We will call a variety of banks and other lenders in an attempt to get the best rate. After numerous phone calls you get back to your original lender, and they agree to meet your best rate. Why should you have to spend so much of your time finding the best rate? If you are not quick enough the rate may change before you lock it in.

There is a solution to this problem – use the services of a mortgage broker. 85% of Americans use mortgage brokers today but only 33% of Canadians do; mainly because they do not know what a mortgage broker is and what they do.

What is a mortgage broker? A mortgage broker is an individual who represents a mortgage brokerage firm. The brokerage has access to over two dozen banks, trust companies, insurance companies and other lenders at their fingertips. By dealing with these lenders on a day-to-day basis, we have access to wholesale lending rates which can save you thousands of dollars. It should also be noted that the majority of mortgage brokerages are not owned by the lenders they represent. Brokers work for the borrower, not the lenders. Mortgage software allows us to scan all the lenders for the best rate for the term you are looking for in seconds. In addition we will advise you on the best options for your own personal situation. Newlyweds with no cash can purchase a house with 0% down under certain conditions. Some lenders will even give you 1-5% cash back. Wouldn’t that come in handy for buying curtains and furniture for your new home?

Now this sounds great! Everyone could use an expert to save them money, but how much does it cost? The majority of mortgages are arranged at no cost to the consumer. The lenders pay a finders fee to the brokerage firm for finding and arranging the mortgage. If you have an unusual credit history which involves more work, a set fee would be agreed upon before we start on the application.

Why would you choose to use a mortgage broker instead of your bank?

Lower Interest Rates

Wholesale mortgage rates are discounted an average of 1.20% over what the bank will offer you. A 1% interest discount on a $150,000 mortgage can save you more than $7900 in interest costs over a 5 year term.

Best Mortgage Options

By shopping the lenders’ market we can find you the best options for your particular situation. Banks are limited to the products carried by their institution.

Bank Loan Officers are employees of the bank

Mortgage agents work for you, the borrower.

Fast Service

A mortgage broker can often get your mortgage approved in a day. In addition we can meet you at your home, office, or wherever it is convenient for you.

As you can see, mortgage brokers offer convenience, service and great rates. It’s no wonder more and more Canadians are choosing to call a mortgage broker when it is time to renew their mortgages. As the #1 mortgage brokerage company in Canada, we here at Dominion Lending Centres are ready to help you!