26 Feb

Market Slow Down Set To Intensify Says RBC


Posted by: John Dunford

The slow down in the Canadian housing market seen late in 2017 is likely to get worse before it improves according to RBC Economics.

In his latest housing report senior economist Robert Hogue says that the market is likely to soften further as the pool of buyers who were pre-approved for a mortgage under the old rules runs out.

He notes there could be a “bumpy ride” ahead in the coming months as the spring buying season kicks in following the traditionally slow start to the year.

However, Hogue’s outlook is for interest rates and affordability to maintain downward pressure on the Canadian resale housing market with price increases set to be restrained “substantially.”

The outlook calls for resales of 500,300 units in 2018 (down from 514,400 in 2017) and for price rises to slow from 11.1% in 2017 to just 2.3% nationwide in 2018.

For January, the national home price index gained 7.7% year-over-year, slowing from the 9.2% annual rise in December.

Resales were down sharply in Toronto (-26.6%) and Vancouver (-10.5%) but less evident in Montreal (-4%).

20 Feb

For A Market In Recovery, New Rules Are A Hurdle


Posted by: John Dunford

Still reeling from the oil and gas sector’s plummet, Calgary has shown signs of recovery, however, that’s now in jeopardy.

Calgary’s real estate market is flat with an overabundance of condos still listed and buyers having trouble securing mortgages. Croft Axsen, owner of DLC Jencor Mortgage Corporation, says refinances, in particular, have become difficult to obtain.

“The market here is flat and quiet,” he said. “Refinances are difficult because of the flat prices and the government regulations have restricted activities so much; purchases are flat because of the economy. We don’t have the migration that Toronto and Vancouver do, so sales have been flat for the last little while.”

Axsen’s analysis is in line with what many brokers have told Mortgagebrokernews.ca: B-20, intended as a panacea for overheating in Toronto and Vancouver, has been a paroxysm everywhere else in the country.

“Refinances are not insurable, so all of the monolines are out of that market and there’s less competition because of government interference in the marketplace,” said Axsen. “It’s a significantly smaller market than it used to be, which I assume is the government’s purpose, but I’m not sure restricting liquidity in Calgary is necessary at this time, but I understand their concerns about Vancouver and Toronto. Unfortunately, they want to use a sledgehammer instead of a needlepoint to fix what they’re concerned about.”

He has noticed an uptick in people forced to sell their homes because of an inability to get refinanced, as well as ‘move-up’ buyers with children on the way being stuck in their insufficiently-sized condos.

“For many of them they don’t understand, because they’ve been able to get mortgages their entire lives, but now they’re being told they can’t.”

Julie Jeffery, a broker with DLC Elevation Mortgage, says realtor and consumer confidence is low.

“They’re really, really nervous,” she said. “When people get nervous, they shut down and don’t move ahead with their decisions to buy houses.”

Gone are the days when seemingly everybody bought a new home every three to five years. Now move-up buyers are stuck in their condos, and with condos planned before the economy crashed coming to market, there’s too much supply.

“They list to sell, but are unable to sell,” said Jeffery. “It’s really sort of squashing that market where those condo buyers would be moving up into a townhouse or single-family home, so there are not a lot of sales in the condo market.”

Although sales have hit a nadir, demand for brokers’ expertise is up. While it might provide fleeting comfort, the industry doesn’t appear imperiled—at least for the time being.

“We’re experts in the world of mortgages,” said Jeffery. “As much as there’s been a lot of concern, and as much as I don’t want to see more regulation, the positive I see is that more and more clients are saying, ‘My realtor said you’re an expert and you can help me get a mortgage.’ That at least makes me happy for our industry.”

12 Feb

Dr. Sherry Cooper: Jobs Decline in January Following Blockbuster Year


Posted by: John Dunford

Canada shed 88,000 jobs in January, the most significant drop in nine years, driven by a record 137,000 plunge in part-time work. Full-time employment was up 49,000 while the unemployment rate increased a tick to 5.9%–only slightly above the lowest jobless rate since 1976. January’s sharp decline brings to an end a stunning 17-month streak of gains. While the top-line loss of 88,000 jobs is striking, it still only retraced about 60% of the 146,000 jump in the past two months.

The disappointing employment report will no doubt keep the Bank of Canada on the sidelines for a while, but it follows the most robust job market in 15 years. More than 400,000 net new jobs were created in 2017. Expectations are now that the Bank will hike interest rates cautiously, taking a pass at the March meeting.

Average hourly wages jumped 3.3% year-over-year, the strongest gain since March 2016. This was boosted by the rise in the minimum wage to $14.00 an hour in Ontario at the start of this year. Ontario now has the highest minimum wage in the country.

The largest employment losses were in Ontario and Quebec. There were also decreases in New Brunswick and Manitoba. Declines were spread across some industries including educational services; finance, insurance, real estate rental and leasing; professional, scientific and technical services; construction; and healthcare and social assistance. Employment increased in business, building, and other support services.

Canada’s economy has still seen employment increase by 288,700 jobs over the past 12 months — 146,000 of which came in November and December. Full-time employment is up 558,900 over the past 18 months, which is unprecedented.

8 Feb

‘Something Tells Me The Government Doesn’t Know What It’s Doing’


Posted by: John Dunford

Five weeks into the latest B-20 regime is all it’s taken for brokers to sound off.

Homebuyers are having trouble qualifying for mortgages, as was predicted, and many are securing loans from the private channel. According to Ron Butler of Butler Mortgages, in the name of cooling down two overheated markets, the government has callously acted against the interests of consumers.

“If you live in Medicine Hat and want to finish your basement by refinancing, why should you be afflicted because of something that’s about two big cities in Canada,” Butler said of Toronto and Vancouver. “If your qualification test forces them out of A lending and into B lending, you’ve totally screwed the consumer, and why should that be government policy?

“Why a federal government creates a countrywide regulation when there are only two major metropolitan areas that are important to this formula—why is it that somebody who’s just making an average living in Winnipeg is going to have to be affected by it at all? Something tells me the government doesn’t know what it’s doing. It’s not being careful enough making sure consumers in their everyday lives are not affected by this.”

Passing a 200 basis point stress test is no easy feat, but combined with rising interest rates and foreign ownership that shows no sign of abating—and which augments price points—Canadians could have even more difficulty attaining homeownership.

Alluding to the 15% foreign buyer tax, Butler says it did the trick and, in tandem with other measures, helped bring the cost of housing down.

“In both of the provinces where the provincial governments introduced stiff controls on foreign investments in properties, activity and pricing dropped,” said Butler. “Prices are down in Toronto from April of last year. They’re all down – some slightly and some a bunch. So with prices down anyway, hasn’t the crisis been averted? Yet we continue to add more and more regulations.”

Just how much are borrowers being squeezed?

Krista Lawless, broker and co-owner of Lawless Brown Mortgage Team of VERICO Mortgage Depot, says a lot—especially with the interest rate hike a few weeks ago.

“The new stress test has made brokering more difficult all around,” she said. “The rate hikes are now making it that much more expensive for our borrowers. Those who need to access equity in their property have no choice but to pay the higher rates. With every increase in the qualifying rate, it decreases the loan amount for our borrowers, which can make it a challenge, depending on what their goals are.”

Lawless also called January’s B-20 update “premature” because no time was accorded to the other regulatory measures.

“With rates already on the rise and the Toronto and Vancouver markets adjusting to the foreign buyer tax, I feel they should have waited an appropriate amount of time to see the full impact of those changes in the housing market and then evaluated to see if any further changes were needed,” she said. “The rules implemented have affected everyone coast-to-coast. Borrowers are more limited in their choices and will be forced to seek private financing elsewhere—at a much higher cost—if they do not meet the new government regulations.”

2 Feb

Have Your Say: Did Trudeau’s Debt Answer Satisfy?

Latest News

Posted by: John Dunford

Gary Mauris had a one-on-one sit-down with Prime Minister Justin Trudeau and asked him about one issue that seems to perennially be on every broker’s mind. Did his answer satisfy?

“The biggest issue and the biggest challenge that I see in this country right now and the one area I believe you can really, really help with is regulating credit card debt,” the president of Dominion Lending Centres said to Trudeau during a special CBC segment, entitled Canadians interview the prime minister about issues that matter to them. “If you’ve looked at a credit card statement these days, if you make the minimum payment, it takes you 125 years to pay off your credit card.”

Mauris continues: “Canadians are getting absolutely buried, strangled in credit card debt and it’s the one area that no government has actually focused on and you could actually leave your DNA in this country, you could make such an impact, just by shoring up that one area.”

Excluding mortgages, Canadians hold an average of $21,028 in debt.

And while the government has implemented various plans to curb mortgage debt, brokers have long been frustrated by the government’s inaction when it comes to minimizing this more cumbersome debt.

It’s an issue Trudeau said the government is taking seriously.

“You highlight the challenge of household debt and personal debt. We’re working with banks and making sure regulations are in place that will keep Canadians safe,” Trudeau told Mauris. “Get people the financial literacy needed to know that you can’t borrow now and hope that you’ll be OK later.”

Trudeau failed to go into specifics, even after being asked by Peter Mansbrige in a followup question whether the Prime Minister is worried about the amount of credit card debt in Canada – and what he plans to do about it.

“This is a real challenge but the easy solution of suddenly legislating something like that is not necessarily going to have the consequences people want,” Prime Minister Trudeau said. “We have to be very, very thoughtful about when and how we regulate financial institutions and banks and make sure we’re doing it in a way that is actually going to help Canadians.

“And scapegoating different institutions when it’s about personal responsibility as well … these are things that all go together.”

For his part, Mauris was unsatisfied with Trudeau’s answers.

“He gave a political answer by putting some of the responsibility back on the consumer,” Mauris told MortgageBrokerNews.ca. “I would have liked to hear him say he will get the ministers together to review this and see how it is impacting Canadians, as well as an action plan to say steps are being taken to learn more about the impact, and to put together a framework to oversee it.”

Still, he was impressed with the Prime Minister’s willingness to subject himself to such a rigorous interview process.

“It was unprecedented in this country – most politicians are well-insulated and avoid the tough questions,” Mauris said. “Doing this was a real feather in his cap.”

2 Feb

Janet Yellen’s Fed Era Ends With Unanimous Vote of No Rate Hike

Latest News

Posted by: John Dunford

Federal Reserve officials, meeting for the last time under Chair Janet Yellen, left borrowing costs unchanged while adding emphasis to their plan for more hikes, setting the stage for an increase in March under her successor Jerome Powell.

“The committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate,” the policy-setting Federal Open Market Committee said in a statement Wednesday in Washington, adding the word “further” twice to previous language.

The changes to the statement, collectively acknowledging stronger growth and more confidence that inflation will rise to the 2 percent target, may spur speculation that the Fed will pick up the pace of interest-rate increases. Officials also said inflation “is expected to move up this year and to stabilize” around the goal, in phrasing that marked an upgrade from December.

At the same time, the Fed repeated language saying that “near-term risks to the economic outlook appear roughly balanced.”

With her term ending later this week after President Donald Trump chose to replace her, Yellen is handing the reins to Powell, who has backed her gradual approach and is widely expected to raise interest rates at the FOMC’s next meeting for the sixth time since late 2015. Fed officials are hoping to keep a tight labor market from overheating without raising borrowing costs so fast that it would stifle the economy.

“Gains in employment, household spending and business fixed investment have been solid, and the unemployment rate has stayed low,” the Fed said, removing previous references to disruptions from hurricanes. “Market-based measures of inflation compensation have increased in recent months but remain low.”

With a gradual pace of rate increases, policy makers want to nudge inflation back up to their 2 percent target, a goal they have mostly missed for more than five years. Even with a brightening outlook for global growth and Fed tightening, financial conditions continue to ease.

What Our Economists Say

The FOMC is more confident in the inflation outlook, but is not looking to deviate from its gradual path of policy normalization. The economic assessment acknowledged straightforward improvements in economic conditions, but the tone in no way hints of concerns about the economy overheating. The Fed is on track to raise rates in March. — Carl Riccadonna and Yelena Shulyatyeva, Bloomberg Economics

The vote by U.S. central bankers to keep the benchmark overnight lending rate in a 1.25 percent to 1.5 percent target range was unanimous. Fed officials also voted to continue with their program to reduce the central bank’s balance sheet, which began in October.

The FOMC said in a separate statement Wednesday that it elected Powell as its chairman, effective Feb. 3. He will be sworn in as chairman of the Board of Governors on Feb. 5.

“On a 12-month basis, both overall inflation and inflation for items other than food and energy have continued to run below 2 percent,” the FOMC said, removing a previous reference to declines in inflation in 2017.

Inflation has picked up slightly since the middle of 2017 while remaining short of the central bank’s 2 percent goal. The Fed’s preferred price gauge, a Commerce Department index linked to consumer spending, rose 1.7 percent in the 12 months through December. Excluding volatile food and energy costs, inflation was 1.5 percent.

Yellen isn’t scheduled to hold a press conference after this meeting; her final such event was in December. Fed policy makers will update their economic projections in March, when Powell is also expected to hold his first press briefing as chairman.

New Members

An annual rotation among the 12 regional Fed presidents who vote on the FOMC saw Loretta Mester of Cleveland, Thomas Barkin of Richmond, Raphael Bostic of Atlanta, and John Williams of San Francisco join as members at this meeting. Barkin and Bostic are voting for the first time since taking their posts.

The committee also reviewed its long-run policy goals statement at the January meeting and reiterated its support for the 2 percent inflation target, approving a statement that updated the long-run normal rate of unemployment to 4.6 percent — the median in projections from December.

Several Fed officials have called for a rethink of the central bank’s policy framework, which could include aiming for a higher inflation target, or allowing prices to rise faster to make up for the time that they were too low.

During Yellen’s four years at the helm, U.S. unemployment has fallen to 4.1 percent, the lowest since 2000, as she navigated the Fed away from its crisis-era emergency policies and inched interest rates away from zero. Yellen exploited low inflation to maintain low interest rates that helped pull millions of more Americans back into jobs, and the Fed under her leadership began to pay more attention to labor-market inequality.

“She is going out on a high note,” Diane Swonk, chief economist for Grant Thornton LLP in Chicago, said before Wednesday’s decision.

Powell takes over an economy that expanded at an annualized 2.6 percent pace in the final three months of the year, helped by stronger business investment and consumer spending. Tax cuts signed into law by Trump in December are also likely to lift growth in 2018, though the Fed and most analysts see little long-term boost, if any, to the economy.

The Fed statement didn’t contain any reference to the tax legislation.