2 Oct

Mortgage rates are at an all time low – here’s what you need to know

General

Posted by: Alisa Aragon

By Alisa Aragon

While COVID-19 has had a huge impact on the Canadian economy in the first half of this year, after businesses started reopening, the housing market began picking up. Many home buyers resumed their home searches, and homeowners looking at upsizing to a larger home started listing their homes for sale. With interest rates at historical lows, this is a good time for buyers to get into the market.

The Bank of Canada reviews its benchmark rate about eight times a year, depending on the state of the economy. However, the Bank of Canada made two unscheduled announcements reducing the overnight rate from 1.75 per cent at the beginning of March to 0.75 per cent, with another cut to 0.25 per cent. This was done to cushion the effects of the COVID-19 crisis on the economy in an effort to support the credit and financial system. This is the sharpest decline in the economy since the global economic crisis of 2008/2009 when the overnight rate was last at 0.25 per cent.

The new governor of the Bank of Canada, Tiff Macklem was “unusually clear” that interest rates will remain low for a long time. There are no plans to raise rates until capacity is absorbed, and inflation fits its two per cent target on a sustainable basis, which they estimate will take at least two years.

In addition, the qualifying interest rate was reduced from 4.94 per cent to 4.79 per cent which, to borrowers, means an increase in their borrowing power. To put this into perspective, in 2008, fixed rates were 5.99 per cent. This is much higher than the current qualifying rate of 4.79 per cent.

When you are purchasing a home with less than 20 per cent down payment, the mortgage will be an insured mortgage (also known as a high-ratio mortgage). The mortgage must be backed by Canada Mortgage Housing Corporation (CMHC), Genworth or Canada Guaranty. This insurance premium (also know as mortgage default insurance) is a one-time amount added to your final mortgage balance. This insurance protects the mortgage lender in case there is a loss in principal balance due to a mortgage foreclosure. Both the lender and the insurer need to approve the application. The maximum home price allowed is $999,999 and the maximum amortization is 25 years.

All insured mortgages need to qualify at the qualifying rate of 4.79 per cent. Once you find the right home, a Mortgage Expert will help you find the best mortgage with the best rate and terms. The rate that will be presented to you will be the “contract rate” which is what your mortgage payments will be based on.

All uninsured mortgages you must qualify using at the higher of two rates: the contract rate plus 2 per cent or the qualifying rate of 4.79 per cent. The application only needs to be approved by the mortgage lender and these mortgages can have up to a 30-year amortization.

As you start looking for a new home, and you get a mortgage remember that it is not about the maximum amount you qualify for, but what are you comfortable paying on a monthly basis.

As a Mortgage Expert, I can help you find the best mortgage with the best rate and terms based on your individual needs.


Article seen in New Home + Condo Guide:
https://issuu.com/wall2wall/docs/nexthome-new-home-and-condo-guide-v_0868291345c4a6/24

Photo Credit: Getty Images/iStockphoto

15 Sep

Canadian Housing Market Sets Record Highs in August

Latest News

Posted by: Alisa Aragon

Today’s release of August housing data by the Canadian Real Estate Association (CREA) showed a blockbuster August with both sales and new listings hitting their highest levels in 40 years of data–exceeding the record July activity levels. This continues the rebound in housing that began four months ago.

National home sales rose a further 6.2% on a month-over-month (m-o-m) basis in August, raising them to another new all-time monthly record (see chart below).
Unlike the previous two months in which activity was up right across the country, sales in August were up in about 60% of local markets. Gains were led by the Greater Toronto Area (GTA) and British Columbia’s Lower Mainland. With ongoing supply shortages in so many parts of Canada, it is interesting to note that the GTA and Lower Mainland also saw a considerable amount of new supply become available in August.

Actual (not seasonally adjusted) sales activity posted a 33.5% y-o-y gain in August. It was a new record for the month of August, and the sixth-highest monthly sales figure of any month on record. Transactions were up compared to last August in almost all Canadian housing markets.

So far this year, over 340,000 homes have traded hands over the Canadian MLS Systems, which was up 0.8% from the same period in 2019 despite the COVID-19 pandemic-induced recession.

“It has been a record-setting summer in many housing markets across Canada as REALTORS® and their clients play catch up following the loss of so much of the 2020 spring market,” stated Costa Poulopoulos, Chair of CREA. “Many markets dealing with inventory shortages have been seeing fierce competition among buyers this summer; although, that was something that had been anticipated for 2020 prior to COVID-19. It really does seem that the spring market shifted into the summer”.

According to Shaun Cathcart, CREA’s Senior Economist, “Activity shows signs of moderating in September”.

New Listings

The number of newly listed homes posted a further 10.6% gain in August compared to July. New supply was up in close to three-quarters of local markets, led by gains in the Lower Mainland, GTA and Ottawa.

With the August increase in new supply outpacing the rise in sales for the first time since the rebound began in May, the national sales-to-new listings ratio eased to 69.4% in August compared to 72.3% posted in July. That said, it was still among the highest levels on record for this measure.

Based on a comparison of sales-to-new listings ratio with long-term averages, only about a third of all local markets were in balanced market territory, measured as being within one standard deviation of their long-term average. The other two-thirds of markets were above long-term norms, in many cases well above.

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 just 2.6 months of inventory on a national basis at the end of August 2020 – the lowest reading on record for this measure. At the local market level, a number of Ontario markets are now into weeks of inventory rather than months. So supply constraints are still prevalent in many parts of the country, especially in Ontario.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose by 1.7% m-o-m in August 2020 (see chart and table below). This compares to a 2.3% m-o-m jump in July 2020 – the second largest increase on record (after March 2017) going back 15 years. Of the 21 markets currently tracked by the index, m-o-m gains were posted everywhere but Victoria and elsewhere on Vancouver Island.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 9.4% on a y-o-y basis in August – the biggest gain since late 2017.
The largest y-o-y gains were recorded in Ottawa (+19.9%) and Montreal (+16.4%), followed by increases in the 10% – 15% range in the GTA and surrounding Greater Golden Horseshoe markets. Moncton prices were also up in that range in August.

Prices were fairly flat on a y-o-y basis in Calgary, Edmonton and St. John’s, while climbing in the 3.5% – 5.5% range across B.C.

The MLS® HPI provides the best way to gauge price trends because averages are strongly distorted by changes in the mix of sales activity from one month to the next.

The actual (not seasonally adjusted) national average home price set another record in August 2020 at more than $586,000, up 18.5% from the same month last year.

Bottom Line

CMHC forecasted back in May that the national average sales prices will fall 9%-to-18% in 2020 and not return to yearend-2019 levels until as late as 2022. Instead, the national average sales price as of August has posted a 18.5% gain.

Housing strength is largely attributable to pent-up demand by households that have maintained their level of income during the pandemic. The hardest-hit households are low-wage earners in the accommodation, food services, and travel sectors. These are the folks that can least afford it and typically are not homeowners.

The good news is that the housing market is contributing to the recovery in economic activity.
CMHC Annual Residential Mortgage Industry Report

The Residential Mortgage Industry report provides an in-depth view of the residential mortgage market in Canada: from mortgage origination to funding, covering insured and uninsured mortgages, and encompasses activity from all mortgage lender types. It is based on data available at the end of the second quarter of 2020. The following are key highlights:

Mortgage lender type trends

  • The report shows that in 2019, Canada’s big six banks maintained their strong foothold in the housing finance market, with a 67% market share of newly extended mortgages (see chart below).
  • Mortgage Finance Companies (MFCs) hold 20% of the insured mortgage space and credit unions stand at 12%.
  • Mortgage delinquencies of 90 days or more remained at low levels for all mortgage lender types, which suggests that a steady share of mortgage holders continued to be able to make their payments or were able to defer their mortgage payments.
  • MICs continued to represent 1% in nationwide outstanding mortgages, valued at approximately between $14 billion and $15 billion in mortgage debt.
  • Some MICs offered mortgage deferrals and other types of accommodations to financially strained mortgage consumers. An estimated 10% of mortgage consumers asked for a mortgage deferral.

Mortgage Funding Trends

  • Deposits continued to be the primary source of mortgage funding for the big six banks (66%) and credit unions (77%).
  • Covered bonds made up 17% of total mortgage funding for Canada’s big six banks at the end of the first quarter of 2020, representing an increase of 4% from 2019.
  • Private securitization continued to account for a very small share of the mortgage funding mix in Canada, with just 1.1%. However, the residential mortgage-backed securities market appears to be expanding.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

26 Aug

Help me raise funds to support Easter Seals!

General

Posted by: Alisa Aragon

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.

Covid-19 has had a devastating impact on charities’ ability to fund much needed community programs to support people in our communities who need support the most. Charitable fundraisers like Drop Zone are more important than ever to raise awareness and desperately needed funds.

On Tuesday, September 15th, I will be rappelling down 25 storeys of the Central City Office Tower in Drop Zone Surrey 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 $23,000 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://eastersealsbcy.akaraisin.com/ui/dropzonebc2020/participant/6118104?Lang=en-CA

“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

15 May

Canadian Home Sales and New Listings Plunge in April

General

Posted by: Alisa Aragon

Record Declines in Canadian Home Sales and Listings in April

The pandemic shutdown has put every sector of the economy into a medically induced coma, so, of course, the housing sector is no exception. Data released this morning from the Canadian Real Estate Association (CREA) showed national home sales fell a record 56.8% in April, compared to an already depressed March, in the first full month of COVID-19 lockdown (see chart below). Transactions were down across the country.

Among Canada’s largest markets, sales fell by 66.2% in the Greater Toronto Area (GTA), 64.4% in Montreal, 57.9% in Greater Vancouver, 54.8% in the Fraser Valley, 53.1% in Calgary, 46.6% in Edmonton, 42% in Winnipeg, 59.8% in Hamilton-Burlington and 51.5% in Ottawa.

The residential real estate industry is not standing still, however. Technological innovation is creating new ways of buying and selling homes. According to Shaun Cathcart, CREA’s Chief Economist, “Preliminary data for May suggests things may have already started to pick up a bit for both sales and new listings, in line with evidence that realtors and their clients have adopted new and existing virtual technology tools. These tools have allowed quite a bit of essential business to safely continue, and will likely remain key for some time.”

I have heard agents discussing software that virtually “stages” properties, allowing potential buyers to see the possibilities of existing and renovated floor plans and options in decor and design. The software replaces the need for expensive “physical” staging and can be far more creative. Where there is challenge, there is opportunity, and the people that create and adopt these innovative virtual solutions could be big winners.

Keeping the lid on price pressures, the number of newly listed homes across Canada declined by 55.7% m-o-m in April. The Aggregate Composite MLS® Home Price Index declined by only 0.6% last month, the first decline since last May. While some downward pressure on prices is not surprising, the comparatively small change underscores the extent to which the bigger picture is that both buying and selling is currently on pause.

Mortgage Qualifying Rate Set To Drop

The mortgage qualifying rate, the so-called Big Bank posted rate, has been above 5% since the OSFI stress test began on January 1, 2018. Despite dramatic declines in the government of Canada bond yield, which currently hovers at a mere 0.388%, and a huge fall in contract mortgage rates, the banks have kept their posted rates elevated. The minimum stress test rate began in 2018 at 5.34%, then finally fell to 5.19% and more recently to 5.04%–all still at a historically wide margin above market-determined rates.

In the past week, RBC and BMO have cut their 5-year posted rates slightly further to 4.94%. If no other banks follow, the Bank of Canada’s OSFI stress test rate will fall to 4.99%. If at least one other bank goes to 4.94%, the qualifying rate will drop to 4.94%. Every little bit helps.

Highlights of the Bank of Canada ‘Financial System Review’ (FSR)

With the first news of the COVID-19 pandemic threat, the BoC report said that “uncertainty about just how bad things could get created shock waves in financial markets, leading to a widespread flight to cash and difficulty selling assets. Policy actions are working to:

  • restore market functioning
  • ensure that financial institutions have adequate liquidity
  • give Canadian households and businesses access to the credit they need”

The Bank of Canada’s actions have put a floor under the economy. These along with the federal government spending initiatives and the mortgage deferral program have cushioned the blow to households and businesses. Governor Poloz said, “our goal in the short-term is to help Canadian households and businesses bridge the crisis period. Our longer-term goal is to provide a strong foundation for a recovery in jobs and growth.”

With the economic outlook remaining highly uncertain, the BoC erred on the side of caution in projecting mortgage arrears and non-performing business loans based on the more severe economic scenario it laid out in the April Monetary Policy Report. The pessimistic reading would be that even with policymakers’ extraordinary actions, that scenario would see mortgage and business loan delinquencies eclipse previous peaks. A more optimistic reading would be that policy support has prevented a significantly worse outcome, and a resilient financial system will be able to absorb losses and leave the foundation in place for an eventual economic recovery. And, as Governor Poloz mentioned, a better economic scenario is still within reach as many provinces are beginning to gradually re-open their economies.

The projections in today’s FSR are based on a scenario in which Canadian GDP is 30% lower in Q2 and recovers slowly thereafter. In that scenario, mortgage arrears are projected to increase to 0.8% by mid-2021 from 0.25% at the end of 2019–nearly double the peak in arrears seen in 2009. Meanwhile, non-performing business loans are forecast to rise to 6.4% at the end of this year from 1% at the end of last year, significantly higher than past peaks of less than 5% in 2003 and 2010.

The upshot is that while we might see a significant increase in mortgage arrears and troubled loans over the next two years in this pessimistic economic scenario, these outcomes would have been much worse without the extraordinary programs that have been put in place to support businesses and households. That has important implications for the banking sector. The BoC’s analysis suggests that, with these policy measures, large bank’s existing capital buffers should be sufficient to absorb losses. Without those interventions, “banks would be faring much worse, with important negative effects on the availability of credit to households and businesses.”

Households:

  • 1 in 5 households don’t have enough cash or liquid assets to cover two months of mortgage payments
  • Government support programs (CERB payments and CEWS wage subsidies) will cover a large share of households’ “core” spending (food, shelter, and telecoms)
  • Loan payment deferrals (banks have allowed more than 700,000 households to delay mortgage payments) and new borrowing can help offset remaining income losses
  • Still, some households are likely to fall behind on their debt payments (first credit cards and auto loans, then mortgages)—something we’re already seeing in Alberta and Saskatchewan

Businesses:

  • There have been some signs of reduced funding stress in April: The Bank of Canada’s bankers’ acceptance program is shrinking, the drawdowns of credit lines have slowed as some borrowers are repaying, and corporate debt issuance picked up significantly in April after ceasing in March.
  • Surveys show higher-than-normal rejection rates for small- and medium-sized businesses requesting additional funding from financial institutions
  • Upcoming corporate debt refinancing needs are in line with historical levels, but many borrowers will face in increased costs of funds owing to elevated corporate risk spreads
  • Nearly three-quarters of investment-grade corporate bonds are rated BBB (the lowest investment grade rating)—downgrades would double the stock of high-yield debt and significantly increase funding costs for those borrowers
  • Firms in the industries most affected by COVID-19 tend to have smaller cash buffers, and a sharp drop in revenues will make it difficult to meet fixed costs including debt payments. What started as a cash flow problem could develop into a solvency issue for some businesses
  • The energy sector is facing particular challenges: it has had to rely more on credit lines, has the highest refinancing needs over the next six months and faces the most potential downgrades

Banks:

  • BoC’s term repos have provided ample liquidity to the banking system and reduced funding costs, hence the drop in some banks’ posted and contract mortgage rates
  • Take-up of term repos has slowed in recent weeks—an indication of improved market functioning
  • Regulators have eased capital and liquidity requirements

Governments:

  • The BoC’s asset purchases have helped improve liquidity in the key Government of Canada securities market (the baseline for many other bond markets)
  • The FSR made little mention of government debt sustainability, but in his press conference Governor Poloz noted that overall government debt levels are similar to 20 years ago, and federal debt is significantly lower, giving the federal government plenty of room to maneuver

Bottom Line:

Of course, the pandemic shutdown has strained the financial wherewithal of many households and businesses. That was deemed the price we must pay to mitigate the severe health threat and contain its spread. The BoC report acknowledges the economic fallout of the necessary measures and promises to take additional actions to assure the economy returns to its full potential growth path as soon as feasibly possible. Cushioning the blow for those most in need.

Nevertheless, there are businesses that will close permanently and others that will scoop up declining competitors. Some will benefit from the new opportunities created by social distancing, enhanced sanitation, remote activity, new forms of entertainment and advances in healthcare. Others will no doubt die, although many of these companies were at death’s door before the pandemic emerged. Creative destruction is always painful for the losers, but it opens the way for many new winners and those existing businesses and individuals that are creative enough to adapt quickly to the changing environment.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

8 May

Historic Job Losses in April in Canada As the Economy Bottoms

General

Posted by: Alisa Aragon

Pandemic Batters Canadian Jobs Market

The Canadian economy has been put in a medically induced coma. Never before in modern history have we seen a forced shutdown in the global economy so, not surprisingly, the incoming data for April is terrible. There is a good chance, however, that April will mark the bottom in economic activity as regions begin to ease restrictions.

The economy will revive, but the psychological shock is perhaps the most unnerving. Rest assured, however that, as severe as this is, there are real opportunities here along with the challenges. There are economic winners, not just losers. More on that later.

Employment in Canada collapsed in April, with 2 million jobs lost, taking the unemployment rate to 13.0%, just a tick below the prior postwar record of 13.2% in 1982 (see chart below). The record decline is on the heels of the 1 million job loss in March, bringing the cumulative two-month total to 15.7% of the pre-virus workforce.

Economists had been expecting double the job destruction–a 4 million position decline in April–in reaction to the reports that over 7 million Canadians had applied for CERB. Today’s news reflected labour market conditions during the week of April 12 to April 18. The applications for CERB are more recent, so we may well see these additional losses reflected in the May report.

The 13% unemployment rate underestimates the actual level of joblessness. In April, the unemployment rate would have been 17.8% if the labour force participation rate had not fallen. Compared to a year ago, there were 1.5 million more workers on permanent layoff not looking for work in April – and so not counted as unemployed.

Also, the number of people who were employed but worked less than half of their usual hours for reasons related to COVID-19 increased by 2.5 million from February to April. As of the week of April 12, the cumulative effect of the COVID-19 economic shutdown—the number of Canadians who were either not employed or working substantially reduced hours—was 5.5 million, or more than one-quarter of February’s employment level.

In April, both full-time (-1,472,000; -9.7%) and part-time (-522,000; -17.1%) employment fell. Cumulative losses since February totalled 1,946,000 (-12.5%) in full-time work and 1,059,000 (-29.6%) in part-time employment.

Decline In Employment is Unprecedented

The magnitude of the decline in employment since February (-15.7%) far exceeds declines observed in previous labour market downturns. For example, the deep 1981-1982 recession resulted in a total employment decline of 612,000 (-5.4%) over approximately 17 months.

More of the drop in employment now is the result of temporary layoffs. In April, almost all (97%) of the newly-unemployed were on temporary layoff, whereas in previous recessions, most of the dismissals were considered permanent.

In April, more than one-third (36.7%) of the potential labour force did not work or worked less than half of their usual hours, illustrating the continuing impact of the COVID-19 economic shutdown on the labour market. But job losses were also still weighted, on balance, more heavily in lower-wage jobs. Average wage growth for those remaining in employment spiked sharply higher as a result to 11% above year-ago levels.

All provinces have been hard-hit

Employment declined in all provinces for the second month in a row. Compared with February, employment dropped by more than 10% in all regions, led by Quebec (-18.7% or -821,000).  Quebec leads the country in the number of COVID-19 cases and deaths.

The unemployment rate rose markedly in all provinces in April. In Quebec, the rate rose to 17.0%, the highest level since comparable data became available in 1976, and the highest among all provinces (see table below). The number of unemployed people increased at a faster pace in Quebec (+101.0% or +367,000) than in other regions.

Employment dropped sharply from February to April in each of Canada’s three largest census metropolitan areas (CMAs). As a proportion of February employment, Montréal recorded the largest decline (-18.0%; -404,000), followed by Vancouver (-17.4%; -256,000) and Toronto (-15.2%; -539,000).

In Montréal, the unemployment rate was 18.2% in April, an increase of 13.4 percentage points since February. In comparison, the unemployment rate in Montréal peaked at 10.2% during the 2008/2009 recession. In Toronto, the unemployment rate was 11.1% in April (up 5.6 percentage points since February), and in Vancouver, it was 10.8% (up 6.2 percentage points).

Employment Losses By Sector

In March, almost all employment losses were in the services-producing sector. In April, by contrast, employment losses were proportionally larger in goods (-15.8%; -621,000) than in services (-9.6%; -1.4 million). Losses in the goods-producing sector were led by construction (-314,000; -21.1%) and manufacturing (-267,000; -15.7%).

Within the services sector, employment losses continued in several industries, led by wholesale and retail trade (-375,000; -14.0%) and accommodation and food services (-321,000; -34.3%).

Industries that continued to be relatively less affected by the COVID-19 economic shutdown included utilities; public administration; and finance, insurance and real estate.

In both the services-producing and the goods-producing sectors, the employment decreases observed in the two months since February were proportionally larger than the losses observed during each of the three significant labour market downturns since 1980.

As economic activity resumes industry by industry following the COVID-19 economic shutdown, the time required for recovery will be a critical question.

After the previous downturns, employment in services recovered relatively quickly, returning to pre-downturn levels in an average of four months. On the other hand, it took an average of more than six years for goods-producing employment to return to pre-recession levels following the 1981-1982 and 1990-1992 recessions. After the 2008-2009 global financial crisis, it took 10 years for employment in the goods-producing sector to return to pre-crisis levels.

Green Shoots

As bad as things are, there is some evidence that the economy is approaching a bottom. Business shutdowns are easing in most provinces, and while it will be some time before we see a complete reopening, early signs of improvement are evident. Business sentiment appears to have improved somewhat towards the end of April, as evidenced by data from the Canadian Federation of Independent Business. The Royal Bank economists report that credit card spending looked less weak at the end of April. Housing starts for April held up better than expected. And, most importantly, the spread of Coronavirus has eased, and regions are starting to relax some of the rules to flatten the curve.

Concerning the housing market, before the pandemic, we were going into the spring season with the prospect of record sales activity in much of the country. Aside from oil country–Alberta and Saskatchewan–all indications were for a red-hot housing market. So the underlying fundamentals for housing remain positive as the economy recovers. How long that will take depends on the course of the virus and whether we see a second wave in late fall.

Interest rates have plummeted. Thanks to the 150 basis point decline in the prime rate, variable rate mortgage rates have fallen for the first time since late 2018. Once the Bank of Canada was able to establish enough liquidity in financial markets, even fixed-rate mortgage rates have fallen.

The posted mortgage rate appears stuck at 5.04%, far above contract rates; but with any luck at all, this qualifying rate for mortgage stress tests will ease in the coming months. The Bank of Canada will remain extremely accommodating. In my view, interest rates will not rise until 2022.

Opportunities–There Will Be Winners

Even now, some businesses are enjoying a surge in revenues and profitability. Just to put a more positive note on this period of rapid change, I jotted down a list of companies that are thriving. Top of the list is Shopify, a Canadian company that helps businesses provide online shopping services. Shopify is now the most highly valued company in Canada, as measured by its stock market valuation, surpassing the Royal Bank.

Many who never relied on online shopping have become converts during the lock-down. Amazon is another business that is benefiting, but Amazon needs more competition, and many Canadians would welcome some homegrown online rivals.

Loblaws, with its groceries and drug stores, is booming. So are the cleaning products companies like Clorox and paper products company Kimberly Clark. Staying at home has boosted sales at Wayfair, the online furniture and home products site. Peloton and suppliers of dumbbells and other fitness equipment are seeing increased revenues as people look for in-home alternatives to the locked-down gyms and health clubs.

Demand for cloud services has boosted revenues at Microsoft and Dropbox. Home entertainment is booming, think Netflix and YouTube. Zoom and Cisco (Webex) are also big winners. Qualcomm stands to gain from a more rapid move to 5G. And Accenture and Booz Allen, among other business and government consultants, are busy helping companies reinvent their operations in a post-pandemic world.

In times of enormous uncertainty and volatility, people need expert advice and hand-holding, particularly concerning their finances. That’s where mortgage professionals come in along with financial planners, realtors, accountants and tax lawyers.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

30 Apr

What You Need to Know Before you Buy

General

Posted by: Alisa Aragon

Spring is one of the busiest seasons for retail activity as the good weather gives people lots of time for decluttering, showing the home, garage sales, packing and moving into your new space! Buying a home is an extremely exciting and fulfilling adventure, but before you get started let’s go through some of the most important things you need to know before you buy a home.

First things first, are you ready to own a home? This is likely the largest financial decision you will ever make and there are a few questions you can ask yourself to ensure you are ready:

  • Are you financially stable?
  • Do you have the financial management skills and discipline to handle this large of a purchase?
  • Are you ready to devote the time to regular home maintenance?
  • Are you aware of all the costs and responsibilities that come with being a homeowner?

If you answered ‘yes’ to the above questions, congrats! You’re on the right track. Let’s look at some of the most important things to know:

Securing Your Down Payment
A down payment is the largest, upfront cost that comes with purchasing a home. The minimum on any mortgage in Canada is 5 percent but putting down more whenever possible will lower the amount being borrowed. Note: If you are putting down less than 20 percent, default insurance will be mandatory to protect the investment.

If you have a nest egg of savings that you can apply towards the down payment, then you are ready to move on! If not, RRSPs can be a great resource towards a down payment for a first-time home buyer (up to $35,000). Another option is a gift from a family member, which requires a Gift Letter stating that the money does not have to be repaid and a snapshot showing that the gifted funds have been transferred.

If these are not options for you, then you can still work on ensuring you have a good credit score and determining your budget while saving for a down payment in the meantime.  

Getting Your Credit in Order
Ensuring your finances and credit is in order will make it easier to qualify for a mortgage and can be done while you’re saving for your down payment. Ensuring good credit simply involves paying your bills on time (rent, utilities, car payments) and ensuring your credit cards are paid monthly as well as keeping the balance below 75 per cent of the available limit. If you’re new to the world of credit, consider the 2-2-2 rule. Lenders want to see two forms of resolving credit (ie: credit cards) with limits no less than $2,000 and a clean payment history for two years. Another important note is to avoid making any credit mistakes or other major purchases (such as a new car) until after you have mortgage approval and have closed the deal on your new home.

Don’t Use Your Maximum Budget
Temptation will always be to start looking at the very top of your budget, but it is important to remember that there will be fees, such as mandatory closing costs, which can range from 1 to 4% of the purchase price. Factoring these into your maximum budget can help you narrow down a home that is entirely affordable and ensure future financial stability and security.

Get Pre-Approved
A mortgage pre-approval determines the actual home price you can afford and is different from the pre-qualification in that it requires submission and verification of your financial history. A pre-approval can determine the maximum you can afford to spend, the monthly mortgage payment associated with your purchase price range and the mortgage rate for your first term. Getting pre-approved also guarantees the rate offered to you will be locked in from 90 to 120 days which helps if interest rates rise while you are still shopping.

 

Ron Maranda
Dominion Lending Centres

24 Apr

Home Sales and Listings Plunge in March as the Bank of Canada Steps Up Economic Support

General

Posted by: Alisa Aragon

Housing Market Another Victim of the Virus  

Data released this morning from the Canadian Real Estate Association (CREA) showed national home sales fell 14.3% on a month-over-month (m-o-m) basis in March, the first national indication of the early impact of social isolation. The economic disruption and massive layoffs caused both buyers and sellers to increasingly retreat to the sidelines over the second half of the month.

Transactions were down on a m-o-m basis in the vast majority of local markets last month. Among Canada’s largest markets, sales declined in the Greater Toronto Area (GTA) (-20.8%), Montreal (-13.3%), Greater Vancouver (-2.9%), the Fraser Valley (-13.6%), Calgary (-26.3%), Edmonton (-13.2%), Winnipeg (-7.3%), Hamilton-Burlington (-24.9%) and Ottawa (-7.9%).

Actual (not seasonally adjusted) sales activity was still running 7.8% above a quiet March in 2019, although that was a considerable slowdown compared to the y-o-y gain of close to 30% recorded in February.

“March 2020 will be remembered around the planet for a long time. Canadian home sales and listings were increasing heading into what was expected to be a busy spring for Canadian REALTORS®,” said Jason Stephen, president of CREA. “After Friday the 13th, everything went sideways. REALTORS® are complying with government directives and advice, all the while adopting virtual technologies allowing them to continue showing properties to clients already in the market, and completing all necessary documents.”

“Numbers for March 2020 are a reflection of two very different realities, with most of the stronger sales and price growth recorded during the pre-COVID-19 reality which we are no longer in,” said Shaun Cathcart, CREA’s Senior Economist. “The numbers that matter most for understanding what follows are those from mid-March on, and things didn’t really start to ratchet down until week four. Preliminary data from the first week of April suggest both sales and new listings were only about half of what would be normal for that time of year.”

New Listings
The number of newly listed homes declined by 12.5% in March compared to the prior month. As with sales, the declines were recorded across the country.

With sales and new listings each falling by similar magnitudes in March, the national sales-to-new listings ratio edged back to 64% compared to 65.4% in February. While this is down slightly, the bigger picture is that this measure of market balance was remarkably little changed considering the extent to which current economic and social conditions are impacting both buyers and sellers.

Based on a comparison of the sales-to-new listings ratio with the long-term average, two-thirds of all local markets were in balanced market territory in March 2020. Virtually all of the remainder continued to favour sellers.

There were 4.3 months of inventory on a national basis at the end of March 2020. While this is up from the almost 15-year low of 3.8 months recorded in February, it remains almost a full month below the long-term average of 5.2 months. With the overall number of listings on the market continuing to fall in March, the m-o-m decline in the months of inventory measure was entirely the result of the outsized drop in sales activity.

The number of months of inventory is well above long-term averages in the Prairie provinces and Newfoundland & Labrador. By contrast, the measure is running well below long-term averages in Ontario, Quebec and the Maritime provinces. The measure remains in balanced territory in British Columbia.

Home Prices

With measures of market balance at this point, little changed from recent history, and most of the impact on sales and listings from the COVID-19 situation only showing up towards the end of March, the impact on housing prices will likely take a little longer to become apparent. Price measures for March 2020 were strongly influenced by very tight markets and a very strong start to the spring market in many parts of Canada before physical distancing measures were implemented.

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose 0.8% in March 2020 compared to February, marking its 10th consecutive monthly gain.

The MLS® HPI was up in March 2020 compared to the previous month in 16 of the 19 markets tracked by the index. (See the Table below)

Looking at the major Prairie markets, home price trends have ticked downwards in Calgary and Edmonton to start 2020 but have generally been stable since the beginning of last year. Prices in Saskatoon have also been stable over the last year, while those in Regina have continued to trend lower. Prices in Winnipeg have been on a slow upward trend since the beginning of 2019.

Meanwhile, the recovery in home prices has been in full swing throughout British Columbia and in Ontario’s Greater Golden Horseshoe (GGH) region. Further east, price growth in Ottawa, Montreal and Moncton continues as it has for some time now, with Ottawa and Montreal prices accelerating to start 2020.

Bottom Line: Clearly this is only the beginning, but the plunge in sales and new listings in the second half of March is indicative of the stall out in housing market activity likely until social distancing is removed and people feel safe enough to resume normal activities. No doubt, at that point, there will be buying opportunities, but right now, housing is just another contributor to the collapse in the economy.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

16 Apr

Bank of Canada Puts The Economy on Life Support

General

Posted by: Alisa Aragon

On the heels of a devastating decline in the Canadian economy, the Bank of Canada is taking unprecedented actions. With record job losses, plunging confidence and a shutdown of most businesses, this month’s newly released Monetary Policy Report (MPR) is a portrait of extreme financial stress and a sharp and sudden contraction across the globe. COVID-19 and the collapse in oil prices are having a never-before-seen economic impact and policy response.

The Bank’s MPR says, “Until the outbreak is contained, a substantial proportion of economic activity will be affected. The suddenness of these effects has created shockwaves in financial markets, leading to a general flight to safety, a sharp repricing of risky assets and a breakdown in the functioning of many markets.” It goes on to state, “While the global and Canadian economies are expected to rebound once the medical emergency ends, the timing and strength of the recovery will depend heavily on how the pandemic unfolds and what measures are required to contain it. The recovery will also depend on how households and businesses behave in response. None of these can be forecast with any degree of confidence.”

“The Canadian economy was in a solid position ahead of the COVID-19 outbreak but has since been hit by widespread shutdowns and lower oil prices. One early measure of the extent of the damage was an unprecedented drop in employment in March, with more than one million jobs lost across Canada. Many more workers reported shorter hours, and by early April, some six million Canadians had applied for the Canada Emergency Response Benefit.”

“The sudden halt in global activity will be followed by regional recoveries at different times, depending on the duration and severity of the outbreak in each region. This means that the global economic recovery, when it comes, could be protracted and uneven.”

Today’s MPR breaks with tradition. It does not provide a detailed economic forecast. Such forecasts are useless given the degree of uncertainty and the lack of former relevant precedents. However, Bank analysis of alternative scenarios suggests the level of real activity was down 1%-to-3% in the first quarter of this year and will be 15%-to-30% lower in the second quarter than in Q4 of 2019. Inflation is forecast at 0%, mainly owing to the fall in gasoline prices.

“Fiscal programs, designed to expand according to the magnitude of the shock, will help individuals and businesses weather this shutdown phase of the pandemic, and support incomes and confidence leading into the recovery. These programs have been complemented by actions taken by other federal agencies and provincial governments.”

The Bank of Canada, along with all other central banks, have taken measures to support the functioning of core financial markets and provide liquidity to financial institutions, including making large-scale asset purchases and sharply lowering interest rates. The Bank reduced overnight interest rates in three steps last month by 150 basis points to 0.25%, which the Bank considers its “effective lower bound”. It did not cut this policy rate again today, as promised, believing that negative interest rates are not the appropriate policy response. The Bank has also conducted lending operations to financial institutions and asset purchases in core funding markets, amounting to around $200 billion.

“These actions have served to ease market dysfunction and help keep credit channels open, although they remain strained. The next challenge for markets will be managing increased demand for near-term financing by federal and provincial governments, and businesses and households. The situation calls for special actions by the central bank.”

The Bank of Canada, in its efforts to provide liquidity to all strained financial markets, has, in essence, become the buyer of last resort. Under its previously-announced program, the Bank will continue to purchase at least $5 billion in Government of Canada securities per week in the secondary market. It will increase the level of purchases as required to maintain the proper functioning of the government bond market. Also, the Bank is temporarily increasing the amount of Treasury Bills it acquires at auctions to up to 40%, effective immediately.

The Bank announced new measures to provide additional support for Canada’s financial system. It will commence a new Provincial Bond Purchase Program of up to $50 billion, to supplement its Provincial Money Market Purchase Program. Further, the Bank is announcing a new Corporate Bond Purchase Program, in which the Bank will acquire up to a total of $10 billion in investment-grade corporate bonds in the secondary market. Both of these programs will be put in place in the coming weeks. Finally, the Bank is further enhancing its term repo facility to permit funding for up to 24 months.

The Bank will support all Canadian financial markets, with the exception of the stock market, and it “stands ready to adjust the scale or duration of its programs if necessary. All the Bank’s actions are aimed at helping to bridge the current period of containment and create the conditions for a sustainable recovery and achievement of the inflation target over time.”

This is exactly what the central bank needs to do to instill confidence that Canadian financial markets will remain viable. These measures are a warranted offset to panic selling. Too many investors are prone to panic in times like these, which has a snowball effect that must be avoided. As long as people are confident that the Bank of Canada is a backstop, panic can be mitigated. The Bank of Canada deserves high marks for responding effectively to this crisis and remaining on guard. Governor Poloz and the Governing Council saw it early for what it is, a Black Swan of enormous proportions.

As a result, Canada will not only weather the pandemic storm better than many other countries, but we will come out of this economic and financial tsunami in better condition.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

 

10 Apr

To defer or not to defer

General

Posted by: Alisa Aragon

With Canada’s major Mortgage Finance Companies (MFC’s) and all six big banks offering mortgage deferrals of up to 6 months, as well as case-by-case options from credit unions, one of the major questions currently facing Canadians amid COVID-19 is do you defer your mortgage? To help you with this decision, we have gathered some important information on what it means to defer and the benefits (or side-effects) from doing so.

For anyone who is unsure, a mortgage payment deferral means that customers are not required to make regular payments (principal, interest and property tax, if applicable) on their mortgage. In the case of COVID-19, this deferral period can be up to six months.

As much as you may be keen on taking advantage of deferring your mortgage, it is essential to remember that this is not “free money”. During the time mortgage payments are deferred, it is important to understand that interest will continue to accrue and will be added to the mortgage account balance at the end of the deferral period. That said, depending on your financial situation, this may be a great option for those individuals who are facing lower monthly income due to COVID-19.

When deciding whether to defer, I recommend you have an honest conversation with yourself about your financial situation.

  1. Have you lost monthly income due to COVID-19?
  2. Are you struggling to pay your monthly bills as a direct result of COVID-19?
  3. Are you finding yourself extra stressed about your finances?

Remember, deferring payments is as much an emotional and mental decision as it is a financial one. In most cases, if you are really stressed and struggling then deferral is the way to go as it will help free up some income right away for families with reduced or no monthly income due to COVID-19.

To give you a rough idea of the true cost of deferral, RBC Bank has put out a great ‘ Skip a Payment ’ tool to help you understand how deferring your payment will work. This calculator will show you the amount owing after any deferred payment(s) to give you an idea of how affordable it may be for you. For example, if you have a mortgage rate of 2.80% and 20 years remaining, a single skipped payment of $2,000 will cost you an extra $1,403 over the long-term. Depending on your financial situation and regular monthly income, deferring your mortgage for six months might be a no-brainer for you – especially if it opens up your current finances for other bills.

If you are leaning towards deferring, please give me a call or email me to book your virtual appointment so we can go over your unique situation and I can help explain the costs to you and determine if it is the right option! If deferring is right for you, contacting your lender to apply and take advantage of this offer will be the next step. Ensuring you have approval for deferral will prevent any impact on your future credit rating.

25 Mar

Interest rates on new mortgages increasing, despite Bank of Canada rate drop

General

Posted by: Alisa Aragon

Fixed mortgage rates hiked, discounts on variable rates slashed as banks desperately seek liquidity, while government intervenes.

With the Bank of Canada dropping its overnight rate by a full percentage point this month in response to the COVID-19 pandemic, it would seem to be a great time to shop for a new mortgage.

Not so, according to mortgage experts. In fact, advertised interest rates for new mortgage applications have been climbing significantly over the past few days.

In its March 19 update, mortgage comparison website RateSpy.com wrote as an example that TD Bank had just increased its advertised rates:
• three-year fixed: from 2.69 per cent to 2.89 per cent
• five-year fixed (high ratio): from 2.69 per cent to 2.79 per cent
• five-year variable: from 2.85 per cent to 2.95 per cent (no discount on the bank’s prime lending rate)

Alisa Aragon, mortgage broker with Dominion Lending Centres Mountain View, told Glacier Media in an interview March 20, “Lenders started increasing rates last Friday [March 13, the same day that the Bank of Canada made its emergency cut to the overnight interest rate]. That includes major lenders such as Scotiabank, TD, RBC. They’ve also been reducing variable-rate mortgage discounts on the prime rate, which is currently 2.95 per cent, so the discount on most variable rates is barely anything. In the future, we could see no discounts at all.”

She added, “The fixed rates are usually connected to the bond market, but because banks need liquidity right now, they’re increasing the rates.” The bond market had previously dropped in line with the central bank’s interest rate, but has also rebounded over the past couple of days.

Liquidity for the banks is a key issue for the federal government right now, which announced March 20 that it is introducing “changes will help provide stable funding and liquidity to financial institutions and mortgage lenders and support continued lending to Canadian businesses and consumers.”

This follows an announcement by the Ministry of Finance that it is launching “a $50 billion Insured Mortgage Purchase Program (IMPP)… The amendments allow mortgage lenders to pool previously uninsured mortgages into National Housing Act Mortgage-Backed Securities for CMHC to purchase these securities through the IMPP.  The impact of this measure will provide financial institutions with more liquidity. This, in turn, will allow financial institutions to continue lending to businesses as well as individuals, while assisting customers who face hardship and need flexibility, on a case by case basis.”

By insuring previously uninsured mortgages, the government is essentially taking on the risk associated with those loans, freeing up banks’ balance sheets to provide more liquidity. The moves are intended to support banks while they offer such programs as six-month deferrals of mortgage payments to customers facing financial hardship due to the COVID-19 pandemic.

However, Aragon said that the program would not necessarily prevent banks from raising mortgage interest rates. “It depends on the bank’s balance sheets, every bank is different,” she said. “These are unprecedented times.”

Even though rates for new mortgages are currently rising, applicants are rushing to get a mortgage on the back of news that the Bank of Canada has slashed its overnight rate.

RateSpy’s March 20 update added, “Nearly every long-time mortgage broker we’ve talked to is swamped, with some saying they’re having their highest application volume ever for a March.”

Aragon is one such busy mortgage professional. She told Glacier Media she is also fielding countless calls from people who are asking about possible mortgage deferrals, even when they haven’t lost their jobs. She added that some are hoping to stop paying their mortgages so they can use the money to invest in the stock market while it is depressed. “That’s not how you do it,” she added. “These deferral programs are really for people who are struggling financially due to the pandemic, and those customers will be required to provide proof of hardship.”

RateSpy’s March 20 update confirmed this trend, saying, “We’re hearing of cases where people are using HELOCs [home equity line of credit] to buy stocks. These are presumably (hopefully) well-qualified, risk-tolerant clients with financial safety nets. It’s definitely not a strategy for the overwhelming majority.”

Joannah Connolly/ Glacier Media Real Estate

March 20, 2020 01:41 PM