8 Oct

Great News On The Canadian Job Front

General

Posted by: Alisa Aragon-Lloyd

Blockbuster September Jobs Report – Further Fuel For Rising Interest Rates

Statistics Canada released the September Labour Force Survey this morning, providing some unmitigated good news on the jobs front. Employment rose by 157,000 (+0.8%) in September, the fourth consecutive monthly increase. The unemployment rate fell by 0.2 percentage points to 6.9%.
Employment gains in September were concentrated in full-time work and among people in the core working-age group of 25 to 54. Increases were spread across multiple industries and provinces.

Employment gains in the month were split between the public-sector (+78,000; +1.9%) and the private-sector (+98,000; +0.8%).

Employment increased in six provinces in September: Ontario, Quebec, Alberta, Manitoba, New Brunswick and Saskatchewan.

Service-sector increases (+142,000) were led by public administration (+37,000), information, culture and recreation (+33,000) and professional, scientific and technical services (+30,000).

Employment in accommodation and food services fell for the first time in five months (-27,000).

While employment in manufacturing (+22,000) and natural resources (+6,600) increased, there was little overall change in the goods-producing sector.

The gains in September brought employment back to the same level as in February 2020, just before the onset of the pandemic. However, the employment rate—that is, the proportion of the population aged 15 and older employed—was 60.9% in September, 0.9 percentage points lower than in February 2020, due to population growth of 1.4% over the past 19 months.

The number of employed people working less than half their usual hours was little changed in September and remained 218,000 higher (+26.8%) than in February 2020. Total hours worked were up 1.1% in September but were 1.5% below their pre-pandemic level.

Among 15-to-69-year-olds who worked at least half their usual hours, the proportion working from home was little changed in September at 23.8%. The ratio who worked from home was lowest in Saskatchewan (12.3%) and Newfoundland and Labrador (12.8%), and highest in Ontario (28.7%). Overall, at the national level, the proportion of workers who worked from home was higher in urban areas (25.2%) than in rural areas (15.9%).

In September 2021, 4.1 million Canadians who worked at least half their usual hours worked from home, similar to the level recorded in September 2020.

The unemployment rate declined for the fourth consecutive month in September, falling 0.2 percentage points to 6.9%, the lowest rate since the onset of the pandemic. The unemployment rate peaked at 13.7% in May 2020 and has trended downward since, with some short-term increases during the late fall of 2020 and spring of 2021, coinciding with the tightening of public health restrictions. In the months leading up to the pandemic, the unemployment rate had hovered around historic lows and was 5.7% in February 2020.
The adjusted unemployment rate—which includes those who wanted a job but did not look for one—was 8.9% in September, down 0.2 percentage points from one month earlier.

Long-term unemployment—the number of people continuously unemployed for 27 weeks or more—was little changed in September. There were 389,000 long-term unemployed, more than double the number in February 2020.

The ability of the long-term unemployed to transition to employment may be influenced by several factors, including their level of education and current labour market conditions. For example, those with no post-secondary education face a labour market where employment in occupations not requiring post-secondary education was 287,000 lower in September 2021 than in September 2019 (not seasonally adjusted).

Bottom Line

The Bank of Canada has repeatedly suggested that it would not begin to tighten monetary policy until the economy returned to full capacity utilization, which they estimate will not be until at least the second half of next year. Employment will need to surpass pre-pandemic levels before complete recovery is declared because the population had grown since the start of the crisis 19 months ago.

Substantial job losses remain in the hardest-hit sectors. The chart below shows the employment change in percentage terms by sector compared with February 2020.

Sectors where remote work has been widespread–such as professional, scientific and technical services, public administration, finance, insurance and real estate–have seen a net gain in employment. However, in high-touch sectors that were deemed nonessential, the jobs recovery has been far more constrained. This is especially true in agriculture, accommodation and food services, and recreation. Ironically, these sectors have high job vacancy rates as many formerly employed here are reluctant to return. Enhanced benefits and compensation in these sectors will help.

Just this week, the BoC Governor Tiff Macklem reiterated that widespread inflation pressures are likely to remain at least until the end of this year. Most are reflective of global supply chain disruptions as well as extreme weather events. Just how long these will last is uncertain, but tighter monetary policy would have little impact on this type of inflation.

Nevertheless, bond markets have sold off worldwide in response to inflation fears and the annual US debt-ceiling antics. The final chart below shows the steepening of the Canadian yield curve since one year ago. The 5-year bond yield has risen sharply over that period, from 0.378% to a current level today of 1.205%. It is no surprise that 5-year fixed mortgage rates are rising.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

26 Aug

Please help me, help you feel awesome, and help others in the process!

General

Posted by: Alisa Aragon-Lloyd

How awesome does it feel to have a positive impact on the lives of others – especially those who need it most. I’m taking the leap!

This is for charity, so I am sending this email to you, to personally ask for your support to help me raise funds to support Easter Seals and their programs.

On Thursday, September 9th, I will be rappelling down a whopping 28 storeys of the Metrotower (rooftop to the ground) at Metrotown in Drop Zone Burnaby to raise much needed funds to support children, youth and adults with diverse abilities across BC and Yukon. With your support, Easter Seals will be able to continue to provide essential programs and services that help all people with diverse abilities address life’s challenges and gives them the tools to build their self-esteem, self-confidence and sense of independence. This is especially important and meaningful in today’s environment.

I don’t usually would not ask for your support with anything lie this, but this is an exception! I would really appreciate your support in reaching my fundraising goal. Every amount helps! It only takes a couple of minutes to give and have an impact. These programs simply cannot exist without the generous support of people like us. #Peerpressure #shamefulpitch #desperateplea

Last year the HAVAN Heroes team was able to raise over $55,000 for Easter Seals! Our goal is to top it this year, and I need your help to do so.

Visit this page to donate:
https://p2p.onecause.com/eastersealsdropzonebc/alisa-aragon-lloyd

“I don’t want to live in the kind of world where we don’t look out for each other. Not just the people that are close to us, but anybody who needs a helping hand. I can’t change the way anybody else thinks, or what they choose to do, but I can do my bit.” ― charles de lint

Every donation helps:
• $47 is a day of nutritious snacks and meals for a camper
• $100 is a day at camp for a child with diverse abilities
• $400 supplies one week of art supplies at camp
• $500 supports employment and skills training programs

Thank you so much for your support in advance!
With gratitude,
Alisa

19 Aug

Annual Inflation Hits 3.7% in Canada – A New Election

General

Posted by: Alisa Aragon-Lloyd

This morning’s Stats Canada release showed that the July CPI surged to a 3.7% year-over-year pace, well above the 3.1% pace recorded in June. This is now the fourth consecutive month in which inflation is above the1% to 3% target band of the Bank of Canada. And given the flash election, opposition parties are already making hay. “The numbers released today make it clear that under Justin Trudeau, Canadians are experiencing a cost of living crisis,” Conservative Leader Erin O’Toole said in a statement. He went on to suggest that the Liberal government is stoking inflation with its debt-financed government spending programs.

While it is true that deficit spending has surged during the pandemic, the same is also true for nearly every country in the world. Moreover, accelerating inflation is a global phenomenon and most central banks believe it to be temporary. Certainly, Tiff Macklem is firmly of that view, as is the Fed Chair Jerome Powell.

Supply disruptions and base effects have largely caused the rise in inflation. Semiconductor production, for example, slumped during the 2020 lockdowns, and then couldn’t be ramped up fast enough when demand for cars and electronics returned, leading the prices of new and used autos to rise at a record pace. Prices for airfares and hotel stays also jumped. Companies found themselves short of workers as they reopened, leading some to offer bonuses or boost wages and subsequently raise prices for consumers.

Central bankers believe that the price pressures are transitory, representing temporary shocks associated with the reopening of the economy. Lumber prices, for example, spiked when demand for new homes returned and have since normalized (see the chart below). To be sure, above-target inflation has heightened uncertainty. The central banks do not want to choke off the economic recovery through misplaced inflation fears. Many Canadians remain out of work, and long-term unemployment is still very high. Moreover, the recent surge of the delta variant proves that the recovery is uncertain.

Governor Tiff Macklem, whose latest forecasts show inflation creeping up to 3.9% in the third quarter before easing at the end of the year, has warned against overreacting to the “temporary” spike.

Shelter Prices Rising Fastest

Prices rose faster year over year in six of the eight major components of Canadian inflation in July, with shelter prices contributing the most to the all-items increase. Conversely, prices for clothing and footwear and alcoholic beverages, tobacco products and recreational cannabis slowed on a year-over-year basis in July compared with June.Year over year, gasoline prices rose less in July (+30.9%) than in June (+32.0%). A base-year effect continued to impact the gasoline index, as prices in July 2020 increased 4.4% on a month-over-month basis when many businesses and services reopened.

In July 2021, gasoline prices increased 3.5% month over month, as oil production by OPEC+ (countries from the Organization of Petroleum Exporting Countries Plus) remained below pre-pandemic levels though global demand increased.

The homeowners’ replacement cost index, which is related to the price of new homes, continued to trend upward, rising 13.8% year over year in July, the largest yearly increase since October 1987.
Similarly, the other owned accommodation expenses index, which includes commission fees on the sale of real estate, was up 13.4% year over year in July.

Year-over-year price growth for goods rose at a faster pace in July (+5.0%) than in June (+4.5%), with durable goods (+5.0%) accelerating the most. The purchase of passenger vehicles index contributed the most to the increase, rising 5.5% year over year in July. The gain was partially attributable to the global shortage of semiconductor chips.

Prices for upholstered furniture rose 13.4% year over year in July, largely due to lower supply and higher input costs.

Core Measures

The average of core inflation readings, a better gauge of underlying price pressures, rose to 2.47% in July, the highest since 2009.

Monthly, prices rose 0.6% versus a consensus estimate of 0.3%. Rising costs to own a home are one of the biggest contributors to the elevated inflation rate, following a surge in real-estate prices over the past year.

Bottom Line

Today’s inflation data likely did little to alter the Bank of Canada’s view that above-target inflation will be a transitory phenomenon. They are already ahead of most central banks in tapering the stimulus coming from quantitative easing. They do not expect to start increasing interest rates until the labour markets have returned to full employment, which they judge to occur in the second half of 2022. In the meantime, pent-up demand in Canada is huge as people tap into their involuntary savings during the lockdown to pay higher prices at restaurants, grocery stores and gas stations. Financial markets appear to be sanguine about the prospect for rate hikes, as bond yields have been trading in a very narrow range.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

26 Jul

New Stress Test, First Responder Program and Enhanced First Time Buyer Program

General

Posted by: Alisa Aragon-Lloyd

* New Stress test Rules

As expected, the Office of the Superintendent of Financial Institutions (OFSI) confirmed that it will move ahead with the proposed new stress test which was announced in April. This will affect any uninsured mortgages which would affect anyone buying a property with more than 20% down payment, or anyone refinancing their mortgage.

However, it was not expected that the Department of Finance is following OFSI’s lead and applying the new stress test to insured mortgages this now will affect anyone buying a property with less than 20% down payment and are required to have mortgage default insurance.

This means that when applying for a new mortgage or refinance your mortgage whether it is insured or uninsured, you will have to qualify with the new stress test. Borrowers will now have to qualify (show that they can afford the payments) based on the higher of the contract rate (the rate that you will be paying) plus 2% or a new floor rate of 5.25%, previously at 4.79%.

The government, who regulates mortgages are concerned with the hot housing market and this is one way to slow down the market. There are other ways that can slow down the market such as increase interest rates however that will have a negative impact on the overall economy.

What does this mean to you?

This means that the biggest impact to you, will be on the amount that you will be able to qualify for.

The increase of the new stress test will decrease the borrowing power by approximately 4% to 4.5%. For example: prior to the change, a borrower could qualify to purchase a home for $735,000 by putting 20% down payment. With the new stress test the borrower would now only qualify for a home of a purchase price of $700,000.

To put this in perspective, the B-20 stress test that was implemented in January 2019 which required borrowers to qualify at the higher of either the 5-year posted rate or the contract rate plus 2% their buying power was reduced by 22%.

* Enhanced First-time Home Buyer Incentive Program

On September 2nd, the Government of Canada introduced the First Time Home Buyer Incentive (FTHBI) to help qualified First Time Home Buyers purchase a home, making homeownership more affordable by reducing their monthly mortgage payment without increasing their down payment.

The First Time Home Buyer Incentive is considered a Shared Equity Mortgage (SEM) where the Government of Canada has a shared interest in the borrower’s property value. The government shares in both the upside or downside of the property value.

By using the incentive, the borrower may not have to save as much of a down payment for a smaller mortgage, and, ultimately, lower monthly costs.

The homebuyer will have to repay the incentive based on the property’s fair market value at the time of repayment. If a homebuyer received a 5% incentive, they would repay 5% of the home’s value at repayment. If a homebuyer received 10% incentive, they would repay 10% of the home’s value at repayment.

However, due to the higher property values this program was not beneficial in major metropolitan areas such as Vancouver, Victoria and Toronto.

The good news is the program has been enhanced where first time home buyers purchasing a home in these census metropolitan areas are now eligible for an increased qualifying annual income of $150,000 instead of $120,000, and an increased total borrowing amount of 4.5 times instead of 4.0 times their qualifying income. For borrowers purchasing outside these areas the original qualifying income remains the same.

To find out how this program affects you or someone you know buying or the first time, please contact me.

* Introducing First Responder Mortgage Program

I wanted to personally say “Thank you” to all our First Responders. They are an integral part of our communities and a way to show our gratitude, we are happy to introduce the Dominion Lending Centres First Responder Mortgage Program.

This program is backed by one of Canada’s largest banks and includes competitive rates and cash back incentives depending on your mortgage amount.

This program is eligible for the following individuals:

· Police officers

· Paramedics

· Firefighters (employed &volunteer)

· Correctional services

· Border services

· Search & rescue (employed & volunteer)

· Registered physicians

· Registered nurses

Please contact me today for more details!

* Looking at options or have questions?

Interest rates have gone up slightly, yet they are still close to their all time low!

If you think ahead for the coming year and if you wish to access any funds for any reason: investments, renovations, debt payout, etc. The savings on the low interest mortgage rate against high credit card fees is a huge savings on its own. If you have been considering it, now may be just the right time to do something like this and save for the next 5 years.

Also, if you are thinking of selling within the next 2 – 3 years, you can port (move) this mortgage over to your new property as well as increase or decrease according to what you need at that time.

As always, if you have any questions or need assistance, please give me a call at 778.893.0525 or send me an email alisa@financingpros.ca.

Thank you for your business and referrals, they are always much appreciated.

Wishing you a great day ahead and hope you stay healthy!

With gratitude,

Alisa

11 Jun

Friendly reminder that your property taxes due on July 1, 2021

General

Posted by: Alisa Aragon-Lloyd

We hope you are doing well!

We wanted to remind you to apply for the BC Homeowners Grant if you are eligible. To apply for the grant, you have to complete the application sent with your tax bill and return to local municipality. In most municipalities, you are able to apply for the Homeowner Grant online. It is as simple as visiting your municipality’s website and look for the link to apply for your Homeowner Grant. You will need your Folio number and access code that can be found in your property tax notice.

If your lender is collecting the property taxes for you, you are still required to apply for the grant. Your municipality will charge you a 5% penalty if you do not pay your property taxes or claim the grant by July 1, 2021.

If you have any questions or need to find out information on the amount of money that has been collected by your lender to pay towards your property taxes, please contact your lender directly or feel free to contact me and we will be more than pleased to help.
________________________________________

As always, if you have any questions or need assistance, please give me a call at 778.893.0525 or send me an email alisa@financingpros.ca.

Thank you for your business and referrals, they are always much appreciated.

Wishing you a great day ahead and hope you stay healthy!

With gratitude,
Alisa

29 Apr

Credit Card Rules: How to Wean Yourself Off Credit Card Debt

General

Posted by: Alisa Aragon-Lloyd

By Alisa Aragon-Lloyd, published in “New Home and Condo Guide – Vancouver”

The Canadian government has implemented credit card regulations, which it says increase transparency and protect consumers. Here are some of the new regulations now in place:

• Credit contracts and application forms must have a “summary box” that clearly explains interest rates, fees, and how long it would take to fully repay a balance if only minimum monthly payments are made.

• Banks must give advance disclosure of interest rate increases, even if this information is already in the credit contract.

• You must give your consent before your credit limit can be increased.

• If you transfer your balance to a lower-interest card, your payments now have to be allocated in your favour.

• There’s now a limit on certain debt collection practices used by financial institutions.

• Banks can’t charge over-the-limit fees resulting from holds placed by merchants.

• One of the most significant changes you’ll have a minimum 21-day interest-free grace period on all new purchases if you pay your outstanding balance in full by the due date.

Critics of the new rules say they don’t go far enough. However, at least the government is trying to make an effort to help consumers avoid predatory lending practices. And that’s a good thing.

However, an even better strategy is to start weaning yourself off of credit card debt. Unlike taking out a mortgage to buy a home or revenue property, buying stuff with your credit card at high interest rates doesn’t yield any returns – it simply gets you deeper in debt.

The following are some tips to help you use your credit card responsibly so you don’t pay unnecessary charges and get in trouble with credit card debt:

• When you pay for something with a credit card, you are taking out a loan and you have to pay it back.

• Pay the balance in full each month

• If you can’t pay it in full, pay as much as you can

• Don’t make only the minimum payment

• If you always carry a balance, get a low rate card

• Pay a few days before the due date

• If you have a line of credit, transfer the balance to your line of credit with a lower rate. The goal is to pay down your debt and not go further into debt.

Put yourself on a budget, take a part-time job (or start a home business) and eventually get your credit cards paid off. You will be astonished how much extra money you will have to invest in assets that actually appreciate in value and put cash in your pocket!

16 Apr

March Existing Home Sales in Canada Hit New Record High As New Listings Surge To Unprecedented Levels

Latest News

Posted by: Alisa Aragon-Lloyd

What is All the Policy Hysteria About?

Today the Canadian Real Estate Association (CREA) released statistics showing national existing home sales hit another all-time high in March. What was arguably more noteworthy was that new listings hit their highest level on record in seasonally adjusted terms in March. Prices continued to rise as sales dwarfed the new supply.

The number of homes sold across the country rose 5.2% on a seasonally adjusted basis. The actual (not seasonally adjusted) activity was up 76.2% year-over-year (y-o-y). The 76,259 houses that sold were 14,000 more than the previous monthly sales record set last July. The number of newly listed properties jumped another 7.5% from February to March. Benchmark home prices rose 3.1% from the previous month and were up 20.1% y-o-y.

The month-over-month increase in national sales activity from February to March was broad-based and generally in line with locations where more new listings became available. Sales gains were largest in March in Greater Vancouver, Calgary, Edmonton, Hamilton-Burlington and Ottawa.

“Seeing how many homes were bought and sold in March 2021, one could be forgiven for thinking the market just continues to strengthen, and maybe to some extent it is,” stated Cliff Stevenson, Chair of CREA. “The real issue is not strength in housing markets but imbalance. That demand has been around for months, but with the shortages in supply we have across so much of Canada, a lot of that demand has been pressuring prices. So the big rebound in new supply to start the spring market is the relief valve we need the most to get that demand playing out more on the sales side of things and less on the price side. That said, it will take a lot more than one month of record new listings, but it looks like we may finally be rounding the corner on these extremely unbalanced housing market conditions. It’s great news for frustrated buyers…”

“We spent a lot of time over the last year talking about pent-up demand, but I think now is a good time to talk about pent-up supply, which may be the answer to the question everyone is asking right now,” said Shaun Cathcart, CREA’s Senior Economist. “2020 was the year that home became everything, so in hindsight it’s not that surprising that so many people who did not have one in which to ride out the pandemic really wanted one, while so many of those who did have a home to hunker down in were not inclined to give it up. Then, it stands to reason that as the uncertainty caused and the danger posed by COVID wind down, some owners who would not sell during a global pandemic will emerge with properties for sale. At the same time, some of the urgency on the demand side could dissipate. We’ll only know in the fullness of time, but March certainly did nothing to disprove the idea. That said, the third wave of COVID-19 could throw a wrench into the works of a potential supply recovery this spring”.

New Listings

The number of newly listed homes climbed a further 7.5% to set a new record in March. With February’s big rebound, new supply is up more than 25% in the last two months.

With the rebound in new supply outpacing recent sales gains, the national sales-to-new listings ratio eased back to 80.5% in March compared to a peak level of 90.9% set in January. The long-term average for the national sales-to-new listings ratio is 54.4%, so it is currently still very high historically. The good news is it appears to be moving in the right direction finally.

Based on a comparison of sales-to-new listings ratio with long-term averages, less than 20% of all local markets were in balanced market territory in March, measured as being within one standard deviation of their long-term average. The other 80%+ of markets were above long-term norms, in many cases well above. The first three months of 2021 and the second half of 2020 have seen record numbers of markets in seller’s market territory. For reference, the pre-COVID record of only around 55% of all markets in seller’s territory was set back at the beginning of 2002.

The number of months of inventory is another important measure of the balance between sales and the supply of listings. It represents how long it would take to liquidate current inventories at the current rate of sales activity. There were only 1.7 months of inventory on a national basis at the end of March 2021 – the lowest reading on record for this measure. The long-term average for this measure is a little over five months.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) climbed by 3.1% m-o-m in March 2021 – similar to but slightly less than the record gain in February.

While price growth remains the largest in the single-family home space, the pace of those gains decelerated in March while price gains in the more affordable townhome and apartment segments continued to pick up steam. Of the 41 markets now tracked by the index, all but one were up on a m-o-m basis.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 20.1% on a y-o-y basis in March. Based on data back to 2005, this was a record y-o-y increase, surpassing the previous record of 18.6% set back in April 2017.

The largest y-o-y gains continue to be posted across Ontario, followed by markets in B.C., Quebec and New Brunswick, then by single-digit gains in the Prairie provinces and Newfoundland and Labrador.

The actual (not seasonally adjusted) national average home price was a record $716,828 in March 2021, up 31.6% from the same month last year. That said, it is important note that the biggest increase in new supply and thus sales in March was in Greater Vancouver, which raised that market’s share of national activity to its highest level in almost four years.

Detailed home price data by region is reported in the table below:

Bottom Line

The continued strength in the market comes amid a debate in Canada over whether a housing bubble is building and what policymakers should do about it. Last week, Canada’s banking regulator, OSFI, said it is examining whether to set up a new higher minimum benchmark interest rate of 5.25% to determine whether people qualify for uninsured mortgages, and Prime Minister Justin Trudeau’s government has said it is looking to impose a tax on foreign, non-resident homeowners. Some economists have argued these steps aren’t enough, though March’s increase in supply may ease some of these concerns.

The simplest explanation for why the housing market has been so strong is the dramatic decline in mortgage rates generated by the Bank of Canada’s easing in monetary policy in March 2020 with the onset of the pandemic. The central bank’s policy move did precisely what it was intended to achieve, even though it may now be proving counterproductive. Trying to now halt or temper demand through a myriad of additional complex rules is not only inefficient but also risks unintended consequences.

The dramatic decline in mortgage rates to record low levels boosted the purchasing power of households. Also, many were able to buy further away from expensive cities also easing the burden of home purchases of household expenses. This not only occurred across Canada, but we observed the same phenomenon in many countries around the world. Home price inflation has been greatest the further you go out from city centres.

I agree with Beata Caranci, SVP & Chief Economist of TD Bank when she pointed out that, “Canada already has a number of safety levers in place around household financial risks. In fact, the IMF concluded in January 2020 that Canada’s “macroprudential stance is broadly adequate” and the stance was relatively tight, reflecting the six rounds of tightening mortgage insurance rules by the Department of Finance. Provinces and cities have also enacted measures over the years to discourage speculative activity via taxing vacant properties or upping land transfer taxes.”

Buyers are not irrational when they are concerned about being priced out of a home purchase. For the past thirty years, despite all the hype about housing bubbles in cities like Vancouver and Toronto, residential real estate has been a great investment and far less volatile than alternative uses of funds. This has been boosted by Canada’s immigration policy which has triggered the strongest population growth among the G7 countries. Property taxes and land transfer taxes are already among the highest in the world and, unlike the US, mortgage payments and property taxes are not tax-deductible.

The bulk of the new housing supply has been in multi-unit housing. The pandemic has highlighted the value of a much-coveted single-family home. That has been reflected in the surge in the prices of such homes, which were still affordable in heretofore untapped markets well beyond the major cities. Why shouldn’t today’s dual-income households aspire to the same homeownership dreams their parents fulfilled? Even after this boom in housing, which will no doubt slow as the pandemic ends and interest rates return to more normal levels, delinquency rates on outstanding mortgages will remain low. The guardrails put in place by the series of actions since 2016–reducing amortizations, increasing minimum downpayments, and tightening mortgage stress testing requirements–all but guarantee that in the strong economic recovery from the pandemic, credit risks are already sufficiently low.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

9 Apr

Banking Regulator Aims To Make It Tougher To Get An Uninsured Mortgage

General

Posted by: Alisa Aragon-Lloyd

With several Big-Five bank CEOs calling for regulatory action to slow the red-hot housing market, it didn’t take long for the Office of the Superintendent of Financial Institutions (OSFI), the governor of federally regulated financial institutions, to respond. In a news release issued today, OSFI proposed an increase in uninsured mortgages’ qualifying rate to the higher of the mortgage contract rate plus 200 basis points or 5.25% as a minimum floor.

Based on posted rates of the country’s six largest lenders, the current threshold is at 4.79%. Before the pandemic, the posted rate was widely considered too high relative to much lower contract rates. Remember, Canada’s six largest lenders under OSFI’s jurisdiction set the posted rate each week when they submit to the Bank of Canada the so-called ‘conventional 5-year mortgage rate’. It has increasingly born little relationship to actual contract rates.

OSFI, once again, shows itself to cozy up to the Canadian banking oligopoly. Keep in mind that delinquency rates on the Canadian banks’ mortgage books are very low–both in historical terms and compared with financial institutions in the rest of the world. OSFI couched this proposal in terms of “the importance of sound mortgage underwriting.”

In the release, OSFI said, “The minimum qualifying rate adds a margin of safety that ensures borrowers will have the ability to make mortgage payments in the event of a change in circumstances, such as the reduction of income or a rise in mortgage interest rates. As mortgages are one of the largest exposures that most banks carry, ensuring that borrowers can repay their loans strongly contributes to the continued safety and soundness of Canada’s financial system.”

The comment period ends on May 7. OSFI reported that they would communicate the revised B-20 Guideline by May 24, with an implementation date of June 1, 2021.

This all but ensures that the current boom in home buying will accelerate further in the spring market–providing an impetus for borrowers to get in under the June 1 deadline. OSFI’s move will trigger an even hotter spring housing market as demand is pulled forward just as it was before the January 1, 2018 implementation date of the current B-20 ruling.

This will not impact non-federally regulated FI’s such as credit unions, mono-lines and private lenders, nor does it immediately impact insured-mortgage borrowers.

The federal government is in charge of mortgage qualification for insured mortgages. CMHC and the finance department could well follow OSFI’s lead in tightening qualifying rules for insured loans.

Bottom Line

It is noteworthy to remember that on January 24, 2020, OSFI indicated that it was reviewing the benchmark rate (or floor) used for qualifying uninsured mortgages. At that time, the thought was that the widening gap between the posted rate and the contract mortgage rate was too large and that OSFI and the Bank of Canada would publish a mortgage rate weekly that would better reflect the contract rates. The new qualifying rate would be that contract mortgage rate plus 200 basis points. This consultation was suspended on March 13, 2020, in response to challenges posed by the COVID-19 pandemic.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

31 Mar

Innovative Mortgage and Investment Strategies

General

Posted by: Alisa Aragon-Lloyd

by Alisa Aragon-Lloyd, as seen in “New Condo + Condo Guide”

Most people believe that being mortgage-free is their plan for retirement. That means paying off your mortgage as fast as possible becomes the priority and having other forms of investments are considered only after your property is paid off.

It is important to decide what option will give you the balanced diversification and protect you from the real estate market and economic fluctuations.

One strategy is to be mortgage- free, so you will have minimal property expenses when you retire and have 100 per cent of the value of your home in equity. You will then have extra funds when you decide to down-size to a smaller home. But by putting all of your eggs in one basket, you could be limiting the ability to use other investment options that could give you a higher return on investment and would help you achieve your retirement goals faster.

By focusing on making extra payments towards your mortgage, making lump sum payments on your mortgage, or increasing your payments regularly, you would shorten the life of your mortgage, yet you are not investing into your RRSPs.

Here is the best of both worlds: By investing in your RRSPs, you pay less taxes, get a refund, and with that money you could make a lump sum payment on your mortgage every year.

Another option would be to put the equity in your home to work for you by using a HELOC (a home equity line of credit). This will give you access to your equity whenever you need it and would be a perfect investment vehicle.

Having a HELOC separate from your actual mortgage, gives you the flexibility to use it for investment purposes, therefore, the interest you pay on funds that are drawn from the home equity line of credit are tax-deductible.

Here are some investment ideas: Use the funds from the HELOC to purchase an investment property, and with the rental income you could cover the mortgage payments and property costs. The rental property would then pay for itself and you have a vehicle to help with your retirement goal.

Another idea is doing the “Smith Manoeuvre”. This means using the HELOC for short and long term investments. You do short-term, high-return investments, that when cashed, help you pay off the line of credit. Any extra money you have made, will allow you to make a lump sum payment on your original mortgage.

It is important to have a retirement strategy that works for you by exploring different ways that work with your lifestyle and goals. A comprehensive strategy can be put in place by working with your Mortgage Expert, Financial Adviser and Accountant.

10 Mar

Bank of Canada Holds Rates and Bond-Buying Steady

Latest News

Posted by: Alisa Aragon-Lloyd

Much has changed since the Bank of Canada’s last decision on January 20. While the second pandemic wave was raging, new lockdowns were implemented in late 2020, and there were fears that the economy, in consequence, was likely to grow at a 4.8% annual rate in Q4 and contract in Q1. Instead, the lockdowns were less disruptive than feared, as Q4 growth came in at a surprisingly strong 9.6% annual rate–double the pace expected by the Bank.

Rather than a contraction in Q1 this year, Statistics Canada’s flash estimate for January growth was 0.5% (not annualized). Strength in January came from housing, resources and government spending, and the mild weather likely helped. In today’s decision statement, the central bank acknowledged that “the economy is proving to be more resilient than anticipated to the second wave of the virus and the associated containment measures.” The BoC now expects the economy to grow in the first quarter. “Consumers and businesses are adapting to containment measures, and housing market activity has been much stronger than expected. Improving foreign demand and higher commodity prices have also brightened the prospects for exports and business investment.”

A massive $1.9 trillion stimulus plan in the US is also about to turbocharge Canada’s largest trading partner’s economy, which will be a huge boon to the global economy and explains why commodity prices and bond yields have risen substantially in recent months. The Canadian dollar has been relatively stable against the US dollar but has appreciated against most other currencies.

Economists now expect Canada to expand at a 5.5% pace this year versus a 4% projection by the Bank of Canada in January. Going into today’s meeting, no one expected the Bank to raise the overnight policy rate, but markets were pricing in more than a 50% chance of an increase by this time next year, up from about 25% odds in January.

On the other hand, the BoC continued to emphasize the risks to the outlook and the huge degree of slack in the economy. “The labour market is a long way from recovery, with employment still well below pre-COVID levels. Low-wage workers, young people and women have borne the brunt of the job losses. The spread of more transmissible variants of the virus poses the largest downside risk to activity, as localized outbreaks and restrictions could restrain growth and add choppiness to the recovery.”

The Bank also attributed the recent rise in inflation was due to temporary factors. One year ago, many prices fell with the onslaught of the pandemic, so that year-over-year comparisons will rise for a while because of these base-year effects combined with higher gasoline prices pushed up by the recent run-up in oil prices. The Governing Council expects CPI inflation to moderate as these effects dissipate and excess capacity continues to exert downward pressure.

According to the policy statement, “While economic prospects have improved, the Governing Council judges that the recovery continues to require extraordinary monetary policy support. We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved. In the Bank’s January projection, this does not happen until 2023.” The Bank will continue its QE program to reinforce this commitment and keep interest rates low across the yield curve until the recovery is well underway. As the Governing Council continues to gain confidence in the recovery’s strength, the pace of net purchases of Government of Canada bonds will be adjusted as required. The central bank will “continue to provide the appropriate monetary policy stimulus to support the recovery and achieve the inflation objective.”

Bottom Line

The Bank gave no indication when it might start to taper its bond-buying. The next decision date is on April 21, when a full economic forecast will be released in the April Monetary Policy Report. Governor Macklem is more dovish than many had expected and will err on the side of caution. When the central bank starts tapering its asset purchases, it will be the equivalent of easing off the accelerator rather than applying the brakes. The Bank of Canada has been buying a minimum of $4 billion in federal government bonds each week to help keep borrowing costs low. That pace may no longer be warranted with an outlook that appears to show the economy absorbing all excess slack by next year, ahead of the Bank of Canada’s 2023 timeline for closing the so-called output gap.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres