Cooling house prices have done little for housing affordability; in fact, it’s getting worse.

RBC says that owning a home in Canada in the third quarter of 2016 was the least affordable in nearly 8 years. Its Housing Trends and Affordability Report reveals that affordability declined for the sixth consecutive quarter.

The rise in unaffordability was highest for single-family homes – the index gained 1.3 percentage points to 49.4 per cent – while unaffordability of condos rise 0.8 percentage points to 35.6 per cent on the index.

The Greater Toronto Area replaced Vancouver as the market with the largest rise in unaffordability and marking the GTA’s highest reading since 1990. However, Vancouver’s ownership costs rose the fastest.

“The third quarter could be a turning point toward improving affordability in the Vancouver area in light of a recent easing in detached home prices, but further deterioration is likely to occur in the near term in Toronto,” said Craig Wright, RBC chief economist.

He added that the new mortgage insurance rules may help the situation over time but expects that 2017 could see s “tug of war” between market-cooling measures and rising longer-term interest rates.

Did Prime go up?

No.

Did my Variable rate mortgage rate change?

No, not unless your variable rate mortgage is with TD.

So the Bank of Canada did not raise rates?

No, in fact they are more likely to lower rates than increase them.

But TD raised rates?

Yes, but only by 0.15% and only for variable rate mortgage holders.

If you are a TDCT client in a variable rate mortgage at TD then read on…

Update RE TD Variable Rate mortgage rate changes

On Nov 1st, 2016 TD announced their own private rate increase affecting just one exclusive group of TD clients. Specifically those in a TD variable rate mortgage.

While the rate adjustment may be minor, at only 0.15%, it is still a change, and nobody likes change.

Does this mean immediate action should be taken?

No.

Does this mean that going variable was a mistake?

No.

Is this change going to stick?

At this point (Nov 11, 2016) no other lenders have followed suit, and TD is effectively all alone on this move. As such TD may back down and reverse the increase.

For those of you with a discount of Prime -0.60% or better, you are still laughing. Such a discount leaves you with a net rate of 2.25% which can only be matched by a two year fixed rate product. And if you have such a discount the odds are you have been enjoying it for some time now as well. Racking up the savings!

For those whose net rate has risen above the 2.25%, keep in mind some of the key features of the TD variable rate product in particular that may make it worth the extra few dollars: You did not wind up in this product with this institution by accident.

The TD variable is a Fixed Payment product, which means your effective payments will remain the same. This is meaningful if the subject property is an investment property as well – no change to your monthly cash-flow.

The TD variable is nearly the only product that can be converted into a 3-year fixed from day one. (Currently ~ 2.29% – but this is just an example, not a suggestion for action) There are greater options with TD than with other lenders.

The pre-payment penalty to break this mortgage is only ~0.50% of the balance, about nine times less than the penalty to break out of their 5-year fixed product (which 60% of clients wind up doing). Keep this in mind before locking in, I am not locking my TD variable in anytime soon.

TD is the only lender that gives you 12 months to find a new home to move the mortgage over to and grants a full penalty refund…even if they give you a deeper discount on the new mortgage! That’s right, a full penalty refund up to a year later, and possibly and even deeper discount!

What is this increase costing me?

A 0.15% increase results in an interest-expense cost increase of $12.50 per $100,000 outstanding.

Got a $300,000.00 mortgage? Then your payment just went up by zero, but the interest component within your payment did go up by $37.50 per month.

Is the Bank of Canada going to raise Prime too?

Highly unlikely by all current estimates.  Said estimates being made by people far smarter than myself.

Will TD raise their own Prime rate further?

This also seems unlikely.

Will TD lower their Prime back to 2.70% to get in line with ALL of the other financial institutions?

Perhaps if TD gets enough pressure from clients they will – and this is where I suggest a call to your TD branch to express your displeasure with them being the only bank to do this to their clients. And only to their mortgage clients.

Do you have an unsecured credit line? Car loan, TD credit card? All good they left the interest rates the same on those. What’s that, you carry no high interest debt? Yep, TD is sparing the folks with consumer debt and only coming after those with mortgage debt. A touch ironic for sure.

If you wish to call TD directly. Look up the local branch here, press ext ‘250’ and this will connect you to the branch manager directly.

This is a phone call that may result in some action – or you can always call me at 514-949-5434.

The nation’s largest network has entered a letter to acquire the mortgage software company.

Dominion Lending Centres is expected close the deal “on or about” December 15 for an aggregate purchase price of $5.5 million.

“We believe this transaction is a significant step forward for the DLC group of companies,” Gary Mauris, president of DLC, said.  It provides us an additional origination delivery platform and allows us to have material influence on user experience, data management, and will easily allow us to add additional revenue streams under a central platform.”

Marlborough Stirling provides its tech services through three product line; Omiga, Optimus and the ubiquitous MorWEB.

“It is currently contemplated that the securities of MSC will be acquired by a new corporation (“Acquireco”) which is 70% owned by DLC and 30% owned by a third-party,” DLC parent company Founder Advantage Capital said in a release. “Funding to complete the acquisition will be provided by DLC and the third-party partner proportionate to their shareholdings in Acquireco.”

Marlborough owns a small share of the country’s mortgage processing pie, with its competitor D+H currently the technology of choice for most brokers and lenders.

Rumours of a potential purchase of Marlborough by DLC were first reported in late November.

Rarely has there been a more widely expected result as today’s 0.25 percent rate hike by the Fed. This is the second interest rate increase since the Fed started the current process of interest rate re-normalization one year ago. Although, many had called for additional hikes earlier this year, the policy makers held the overnight rate steady until now. In today’s press release, the Federal Open Market Committee (FOMC) said it currently sees the US economy strengthening and the labour market tightening. The unemployment rate has fallen more than earlier forecasted and household spending has been rising moderately. Inflation has increased since earlier this year, but remains below the Committee’s 2 percent longer-run target, partly reflecting earlier declines in energy prices and in the prices of non-energy imports as the US dollar has strengthened. Inflation in wages, salaries and benefits have risen considerably, but still remains low. Inflation expectations remain well anchored at low levels. 

One area of economic weakness highlighted by the Fed is business fixed investment. The same disappointing behaviour is evident in Canada as well as businesses have refrained from adding meaningfully to plant, machinery, equipment or software. This troubling weakness has weighed heavily on productivity.

The FOMC intends to increase the target overnight federal funds rate only gradually, which it now considers to be consistent with GDP growth of 2.1 percent next year, up from the earlier median forecast of 2.0 percent. The median forecast for 2018 remains at 2.0 percent and is up slightly to 1.9 percent in 2019. The Fed’s median estimate of longer-term potential growth remains steady at 1.8 percent, roughly in line with the Bank of Canada’s forecast for Canadian potential growth. The range of Committee forecasts is 1.6 to 2.2 percent in the US. 

The Fed sees the near-term risks to the forecast as balanced. The target range for the federal funds rate is now 1/2 to 3/4 percent, which is deemed to remain accommodative, thereby supporting some further strengthening in labour market conditions and a return to 2 percent inflation.

Committee members believe that only a gradual rise in interest rates is warranted given the low level of inflation. Moreover, they expect the federal funds rate will remain below the longer-run expected rate for some time. According to the newly released forecasts of individual members, most expect to the Fed to hike rates three times next year, although the range of estimates is relatively wide. Actual rate hikes, as always, will be dependent on economic data, market movements and global developments. Most members estimate that the longer-term federal funds rate is likely to be 2-3/4 to 3.0 percent.

The markets are watching for the reaction of the President-elect to today’s Fed release. President-elect Trump accused the Fed during the election campaign of being politically motivated in keeping rates steady this year. There is some concern that the Trump administration might threaten the independence of the Fed, in direct contrast to recent presidential policy. Many are expecting PEOTUS to tweet his opinion of today’s move. 

The Bank of Canada will not follow the Fed’s move. Canada’s economy is weaker than that of the US and inflation remains low. Although oil prices have increased recently owing to OPEC and non-OPEC announcements of production cuts, the future path of oil prices remains uncertain.

Longer-term interest rates around the world have spiked since the Trump election as stock markets have rallied. This has driven up mortgage rates in Canada. It is widely expected that the Trump administration will cut tax rates and increased government spending, thereby conducting a very simulative fiscal policy. This is the reason for the rise in longer-term interest rates. The validity of this view remains to be seen, but such action would likely have most of its impact on growth in 2018 and beyond.

The harsher stress test mandated by the new federal real estate measures will do more harm than good to the market, specifically to the younger consumer base.

Montreal agent Thierry Lindor noted that fully 90 per cent of his clients at Remax l’Espace Griffintown who have withdrawn from the housing market are millennials.

Lindor warned that the revised rules, which now test a borrower’s ability to pay at the Bank of Canada’s 4.64 per cent posted rate, will make younger buyers more reluctant—especially considering that salary growth has remained relatively static over the past few years.

“We’re already a bit behind [the rest of Canada] in terms of home ownership,” Lindor told CBC News. “To put such a stress test on our market when we know that these are measures that were taken for Toronto and Vancouver — it’s like if your car has a flat and you decide to change your car.”

“They decided to pass this law for all of Canada and we’re feeling the impact on the sales as well.”

Lindor added that the regulatory revisions had the undesirable effect of some consumers hastily making decisions, which might prove problematic to the market in the near future.

“Some of my brokers had clients rushing to purchase,” the agent explained. “You don’t rush into a $500,000 investment.”

One of Lindor’s clients, Jasbeen Lallbahadoor, said that she had to back out of the $350,000 deal for a townhouse that she had been eyeing prior to the implementation of the new rules.

“I feel deceived by the government,” Lallbahadoor lamented. “You’re planning ahead and then all of a sudden the government comes and takes it away from you.”

To understand financing options for conventional borrowers – just ask me.  In October 2016 the Federal Government announced some significant changes to mortgage rules for high ratio borrowers.  Changes for high ratio mortgages took effect Oct 17th.  Changes for conventional borrowers took effect Nov 30th.  These changes will result in tighter guidelines to qualify for a mortgage, pressure on rates and may impact home prices in a market which has already been softening in recent months.

Let’s clarify the difference between a high ratio and conventional mortgage so we are all on the same page.

A high ratio mortgage occurs when a borrower has less than 20 percent down payment for their property purchase.  The mortgage must be insured through one of the main insurers and the client pays a one-time premium which is rolled into the mortgage.  A conventional mortgages occurs when a borrower has more than 20% down payment which means the mortgage does not require insurance coverage and no additional premium cost. In the case of rental properties or special mortgage programs an insurance premium can apply at a cost to the borrower.

Effective November 30th, all conventional borrowers are required to qualify at the benchmark rate (currently 4.64 percent) and a maximum of 25 year amortization for all mortgage terms if the lender is insuring the mortgage.  In recent years banks  and credit unions have opted to insure some of their conventional mortgages through CMHC, Genworth or Canada Guaranty.  Mortgage companies are required to insure their portfolio of mortgages through these insurers if they source their funds through investors rather than using their own money.  Since they are not a bank they do not have deposits to savings or chequing accounts.  With an insured mortgage the lender transfers their risk of lending to the insurer in the event of default by the borrower.  The mortgage is granted with insurance coverage and includes a mortgage premium.  The lender covers the cost of this insurance so many borrowers would not have any idea if their conventional mortgage was insured or not.

Because mortgage companies insure their mortgages the announcement of the new rules had an immediate impact on their business and what they can offer as competitive products to consumers.  Banks have the option to but don’t have to insure their conventional mortgages and can follow the previous rules for qualifying at contract rates and 30 year amortizations. However as expected, the banks have announced a premium to the interest rate for borrowers to access the 30 year amortizations.  So rates have increased for all mortgages over the past couple of weeks by 20 basis points, for 30 year amortizations an additional premium will be added and a further premium for rental properties.  Bottom line the cost to borrower has increased.

Over the past 20+ years the increase of mortgage companies has created competition for the banks.  There are some concerns these changes to mortgage rules will mean the exit of some mortgage companies from the market place and limit the competition for consumers on rates and products.  We have seen rate increases in the past few weeks which may be in part in response to the changes.  Although after the fiscal year end of October 31st rates typically rise so this may be a non-event.  As the deadline for the new rules for conventional mortgages passes some mortgage companies who fund with their own money have announced shifts to their products and rates to offer competitive options to consumers.  The good news is there is always the power of choice.

I will continue to work with the banks, credit unions and mortgage companies so nothing has changed in that regard – business as usual.

As an independent mortgage broker I can access all lending options including 30 and 35 year amortizations.  In addition there are solutions for rental property owners, financing options for self-employed people and alternative financing for those borrowers who do not fit within traditional offerings. Now more than ever it is important for consumers to consult  with your mortgage broker to review any important aspects of your financial picture, address any concerns and source best solutions.

For assistance with your high ratio mortgage or to understand financing options for conventional borrowers – just ask me.

Citing recently collected data, the Canada Mortgage and Housing Corporation announced on Wednesday (November 30) that foreigners represented only a miniscule segment of home owners in the country’s most active markets, and thus could not be considered as the main driver of the outsized price growth in the Canadian real estate sector.

The latest CMHC report noted that foreign nationals possess a mere 2.2 per cent of condo units in Vancouver and 2.3 per cent in Toronto.

“The evidence tells us that the origin of investor activity in Canadian real estate is primarily domestic,” CMHC president and CEO Evan Siddall said in a speech, as quoted by Metro Vancouver.

“When a white person buys a house, we don’t know. When a person of a different colour does, we do, and that’s not good economics.”

The numbers and comments backed up similar observations made by the B.C. government, which found that foreign money accounted for only 3.6 per cent and then 1.7 per cent of all sales in the province in September and October, respectively.

Despite speculations that the 15 per cent property transfer tax on foreign buyers caused the decline, however, Siddall emphasized that the market already demonstrated signs of slowdown prior to the implementation of the levy.

The CMHC head added that it was a potent blend of record-low interest rates, the rise of the investment housing trend, a growing population, and a healthier economy that is the ultimate driving factor in the price increases, and that the only reliable way to address the affordability issue is to improve supply via the removal of red tape to improve construction speed.

Latest statistics indicate that Canadians are currently carrying over $450 BILLION in consumer debt!

Mortgage Brokers are often called in to help refinance someone’s home in order to repay credit card debts. With current low mortgage rates, it certainly is advantageous to pay off high interest unsecured debts in order to lower monthly carrying costs.

Credit as a lifestyle.

If we could describe one of the biggest changes in our society in the last 40 years is our blasé attitude towards the use of credit. Baby boomers as a group have set the pace and trend on a number of development when they became consumers. One of the main one is the use of credit to finance a lifestyle some say would make our pre depression era generation squirm.

Modern society has brought consumerism to a whole new level. Big box stores, island getaways, niche products and services all contribute and fuel a never ending demand.

A lot of these trends are fuelled by easy credit and lenders as well as credit card issuers have stepped up to the plate by offering access to funds to anyone who wants and qualifies for it.

But with “great powers comes great responsibilities” to quote Spiderman’s Uncle Ben!

We teach our kids to read and write but not how to budget.

So it is no surprise that many consumers get caught in the credit card quagmire with often a one way ticket to bankruptcy.

So it is important as a consumer to stop and take a good look at your buying habits and how you use credit.

Ask yourself these questions:

Do you carry balances on numerous cards or just one or two?

Do you know the exact balance owing on your credit card/s without looking at your statement?

Do you only make the minimum payments or try to pay off balances as much as possible?

Do you worry if you will have enough money left over at the end of the month?

Those are some of the questions you should be asking yourself if you haven’t already. For this is the first step to financial control.

If you find yourself in a financial jam you can certainly apply measures to get out of it.

If it is to overwhelming make a point to consult a professional that deals with these situations and can offer credit counseling.

You can start by putting in place measures that won’t put you in financial trouble again. That is where scissors come in handy. Cut up merchant credit cards that charge high interest.

Snip your way to financial freedom and make a point to pay off your full balance at the end of the month. This way you won’t pay any interest.

Make a point to use only one credit card. This allows easier debt management.

Bottom line is this; don’t get caught in the financial roller coaster. You owe it to yourself and your family to set in place financial stability in your household. It is important that you teach your children proper budgeting techniques.

If you lack the knowledge, then this is a great opportunity to educate yourself and acquire a crucial life skill. Contact me at 514-949-5434.