Canada’s federal housing agency says strong evidence of problematic conditions continues to exist in the national housing market.

Canada Mortgage and Housing Corporation says the most prevalent issues it has observed in the 15 markets it monitors are overbuilding and overvaluation, which occurs when house prices outpace economic fundamentals such as income and population growth.

CMHC first raised its overall risk rating for the national housing market to strong last October.

It said there is strong evidence of problematic conditions in Vancouver, Victoria, Saskatoon, Regina, Toronto and Hamilton.

Edmonton, Calgary, Winnipeg, Montreal and Quebec City show moderate evidence of such conditions, the agency said.

CMHC’s housing market assessment is intended to be an early warning system to alert Canadians about problematic conditions developing in the country’s real estate markets.

“Price acceleration in Vancouver, Victoria, Toronto and Hamilton indicates that home price growth may be driven by speculation as it is outpacing what economic fundamentals like migration, employment and income can support,” CMHC’s chief economist Bob Dugan said in a news release.

“For this reason, homebuyers should ensure that their purchases are aligned with their needs as well as the long-term market outlook.”

Bank of Canada holds interest rate, begins to bake some Trump risks into outlook.

The Bank of Canada is holding its benchmark interest rate at 0.5 per cent and providing a deeper assessment of the risks associated with the big economic unknowns of a Trump presidency.

The central bank is keeping its key interest rate in place with the Canadian economy showing signs of improvement _ but it also warns of the significant uncertainty tied to potential policy changes by the United States, its largest trading partner.

This is the bank’s first release of its updated forecasts and broad economic assessment since Donald Trump won the U.S. presidential election in November. Trump is to be inaugurated as President on Friday.

For now, however, the bank is offering an optimistic outlook by largely sticking with the growth expectations that it released in October, by predicting the economy to expand by 2.1 per cent in 2017 and 2018.

It says its base-case outlook only factors in the impact of the expected U.S. fiscal boost, which would help Canada through increased demand, and the effects of Trump’s vow to cut corporate taxes, which it notes would hurt Canadian competitiveness.

The bank did not account for the full range of Trump’s promised policy changes _ including his protectionist pledge that it says would have material consequences for Canadian investment and exports.

CMHC announced early Tuesday it is increasing its loan insurance premiums effective March 17.

“We do not expect the higher premiums to have a significant impact on the ability of Canadians to buy a home,” said Steven Mennill, Senior Vice-President, Insurance. “Overall, the changes will preserve competition in the mortgage loan insurance industry and contribute to financial stability.”

According to the Crown Corporation, the average homebuyer will see a $5 increase to their monthly mortgage payment as a result.

The increase is the result of last year’s mortgage rule changes, CMHC claims.

“Capital requirements are an important factor in determining mortgage insurance premiums. The changes reflect OSFI’s new capital requirements that came into effect on January 1st of this year that require mortgage insurers to hold additional capital,” it said in a release.

“Capital holdings create a buffer against potential losses, helping to ensure the long term stability of the financial system.”

This latest hike comes less than two years after the most previous one, which was announced in April 2015.

Ottawa will continue to monitor the housing market but is not planning to introduce any further measures for now. That was the message from federal finance minister Bill Morneau when he met with private sector economists Friday and later spoke to journalists.

CBC News reports that the minister said the government is keeping an eye on risks to the market in order to “ensure the housing market is stable and that people are protected in their important investment.”

Mr Morneau also said that the government was keen to ensure that the relationship between Canada and the new US president would be of benefit to trade but said that formal discussions have not yet taken place with president-elect Trump.

The tightened mortgage rules introduced by the federal government last year are having a negative effect on the homebuying plans of first-time buyers.

That’s the finding of a survey for the Ontario Real Estate Association by Ipsos Reid which says that 79 per cent of first-time buyers will delay buying due to the mortgage stress tests.

“Our survey indicates that the new stress test will have a negative impact on first-time buyers’ ability to buy a home,” says OREA CEO Tim Hudak. “It’s important to remember who’s being affected by measures that curb housing demand – a young family looking for more space, a twenty-something trying to get out of his parent’s basement. Just when they’re about to make the leap into home ownership, things get a little less affordable.”

Hudak says that policy should be focusing on helping affordability rather than curbing borrowing. He welcomed the new provincial land tax rebates for first-time buyers which came into force this month which could be followed by a similar move from the City of Toronto.

“More rebate means more money in the pockets of first-time buyers which benefits both home owners and the province,” says Hudak. “The money that home buyers get back either ends up going towards their mortgage or more often they spend it on furniture, appliances, renovations. The economic spin-off that comes with every home sale is immense. In this regard, the City of Toronto stands more to gain from giving its home buyers more rebate, rather than a tax increase.”

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.