26 Oct

Bank of Canada Will Stop Buying Canada Mortgage Bonds

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Posted by: Alisa Aragon

This Wednesday, the Bank of Canada will release its interest rate announcement and the October Monetary Policy Report. Most people expect the overnight rate to remain at 0.25%, where it has been since the pandemic hit. A few have suggested that the Bank could take a page from Australia and reduce overnight rates by 15 basis points. I don’t think so.

Canada’s economy is not as similar to Australia’s as you might think. Yes, both countries speak mostly English, are commodity exporters, and have a currency called the dollar. But that is where the similarities end. Australia is largely a supplier to China and East Asia, while the US dominates Canada’s exports. And our major resource is oil rather than metals. Most importantly, the Bank of Canada believes that lower rates would not be helpful, given the squeeze they put on the banking system’s workings.

The Bank has committed to staying at 0.25% until economic conditions would be consistent with a sustained 2% inflation rate. With the second wave of COVID cases and rolling shutdowns upon us, the economic rebound will slow in the coming quarters. Moreover, it is unlikely we will see inflation averaging above 2% or higher through 2022. The base case forecast for overnight rates by the Bank of Canada will remain at 0.25% until 2023 unless we see a miraculous end to the pandemic far sooner than most experts predict.

Where the Bank will make policy changes is in quantitative easing–the buying of financial assets to improve liquidity in financial markets. The Bank’s Governing Council has, for months, hinted at the need for the current structure of the QE program to be “calibrated.” While there have been few details on what this means, we interpret it to imply a move away from a QE program supporting ‘market-functioning’ to one that attempts to achieve a ‘monetary policy objective.’ To some degree, this has already started.

On October 15, the Bank announced it would retire the Repo purchase program, the Bankers’ Acceptance purchase Facility and the Canadian Mortgage Bond Purchase Program (CMBP). These areas of the Canadian fixed income market are fully functioning at present, and the Bank likely felt ongoing support was no longer necessary. The end of the CMBP got the attention of some mortgage market participants who argued it spelled the end of declining mortgage rates. I think this is a misinterpretation of the Bank’s actions.

As the chart below shows, the use of the CMBP has waned considerably since its introduction in March. It just isn’t needed any longer to assure liquidity in the CMB market. Since August, lenders have only been using about $70 to $190 million per week of the BoC’s $500 million capacity. The last time lenders fully utilized, it was in April when the emergency program was clearly needed. Ending this program should have little impact on mortgage rates.
“As overall financial market conditions continue to improve in Canada, usage in several of the Bank of Canada’s programs that support the functioning of key financial markets has declined significantly,” the Bank said in announcing the changes. The program, designed to provide much-needed liquidity to the banking system to keep credit flowing during the worst of the crisis, has “fallen into disuse as the stresses from the pandemic eased, and markets became much more self-sufficient.”

The move follows the bank’s decision a month ago to reduce its purchases of federal government treasury bills and similar short-term provincial money market debt, citing improvements in the health of short-term funding markets.

The CMB purchase program is also dwarfed by the Bank’s Government Bond Purchase Program (GBPP), as the chart below shows. “The central bank has pledged repeatedly that it will maintain the highest-profile of its emergency asset-buying programs – its minimum $5-billion-a-week purchases of Government of Canada bonds – until the [economic] recovery is well underway. It has also so far maintained its two programs to purchase provincial and corporate bonds, even though both programs’ demand has been far below original expectations.
Mortgage rates in Canada have an 85% correlation with the 5-year Government of Canada bond yield, which has fallen sharply over the course of the pandemic crisis.

Bottom Line

Of the three programs being wound down in the bank’s latest announcement, the biggest is the expanded term repo program, under which the central bank has purchased more than $200-billion of the short-term bank financing instruments since mid-March. The program hasn’t generated any purchases since mid-September.

The Bankers’ Acceptance Purchase Facility, involving short-term credit instruments typically used in international trade financing, was used heavily when introduced in March. Still, it hasn’t been tapped at all since late April. The central bank made about $47-billion in purchases under the program. However, all of those purchased assets have since reached maturity, meaning the central bank is no longer holding any bankers’ acceptances on its balance sheet.

The Canada Mortgage Bond Purchase Program predates the pandemic, but the Bank of Canada ramped up its purchases dramatically during the crisis. Since mid-March, it has accumulated about $8-billion of the bonds under its emergency measures through twice-weekly purchases directly from Canada Mortgage and Housing Corp. The size of the bank’s typical purchases in the past couple of months has been less than a quarter of what it was routinely buying in the spring.

These changes in the QE program will have little impact on interest rates and mortgage markets.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

2 Oct

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

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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

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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!

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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

23 Jul

Bank of Canada Holds Target Rate Steady Until Inflation Sustainably Hits 2%

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Posted by: Alisa Aragon

The Bank of Canada under the new governor, Tiff Macklem, wants to be “unusually clear” that interest rates will remain low for a very long time. To do that, they are using “forward guidance”–indicating that they will not raise rates until capacity is absorbed and inflation hits its 2% target on a sustainable basis, which they estimate will take at least two years. As well, they indicate that the risks to their “central” outlook are to the downside, which would extend the period over which interest rates will remain extremely low. The Bank also made it clear that they are not considering negative interest rates. The benchmark interest rate remains at 0.25%, which is deemed to be its the lower bound.

The Bank is also continuing its quantitative easing (QE) program, with large-scale asset purchases of at least $5 billion per week of Government of Canada bonds. The provincial and corporate bond purchase programs will continue as announced. The Bank stands ready to adjust its programs if market conditions warrant.

With the benchmark rate at its effective lower bound, the Bank’s quantitative easing is the way it is lowering mid- to longer-term interest rates, reducing the borrowing costs for Canadian households and businesses. The Bank assumes that the virus will be with us for the entire forecast range, which is two years.

The Bank released its new economic forecast in today’s July Monetary Policy Report (MPR). The MPR presents a central scenario for global and Canadian growth

rather than the usual economic projections. The central scenario is based on assumptions outlined in the MPR, including that there is no widespread second wave of the virus in Canada or globally.

The Canadian economy is starting to recover as it re-opens from the shutdowns needed to limit the virus spread. With economic activity in the second quarter estimated to have been 15 percent below its level at the end of 2019, this is the most profound decline in economic activity since the Great Depression, but considerably less severe than the worst scenarios presented in the April MPR. Decisive and necessary fiscal and monetary policy actions have supported incomes and kept credit flowing, cushioning the fall and laying the foundation for recovery.

Mincing no words, the MPR acknowledged that the COVID-19 pandemic has caused a “worldwide health-care emergency as well as an economic calamity.” The course of the pandemic is inherently unknowable, and its evolution over time and across regions remains highly uncertain.

In Canada, the number of new COVID-19 cases has fallen sharply from its April high, and the economic recovery has begun in all provinces and territories and across many sectors. Consequently, economic activity is picking up notably as measures to contain the virus are relaxed. The Bank of Canada expects a sharp rebound in economic activity in the reopening phase of the recovery, followed by a more prolonged recuperation phase, which will be uneven across regions and sectors (Figure 1 below). As a result, Canada’s economic output will likely take some time to return to its pre-COVID-19 level. Many workers and businesses can expect to face an extended period of difficulty.

There are early signs that the reopening of businesses and pent-up demand are leading to an initial bounce-back in employment and output. In the central scenario, roughly 40 percent of the collapse in the first half of the year is made up in the third quarter. Subsequently, the Bank expects the economy’s recuperation to slow as the pandemic continues to affect confidence and consumer behaviour and as the economy works through structural challenges. As a result, in the central scenario, real GDP declines by 7.8 percent in 2020 and resumes with growth of 5.1 percent in 2021 and 3.7 percent in 2022. The Bank expects economic slack to persist as the recovery in demand lags that of supply, creating significant disinflationary pressures.

Bottom Line

Governor Macklem said in the press conference that what he wants Canadians to take away from today’s Bank of Canada’s actions is “Canadian interest rates are very low and will remain very low for a very long period”. The reopening of the Canadian economy is well underway. Economic activity hit bottom in April and began expanding in May and accelerated in June. About 1.25 million of the 3.0 million jobs that were lost in March-April, were added in May and June.

Some activities, including motor vehicle sales, have already seen a strong pickup since April. Likewise, housing activity fell sharply during the lockdown but is beginning to recover quickly. In contrast, some of the hardest-hit businesses, such as restaurants, travel and personal care services, have only just started to see improvements in recent weeks and are expected to continue to face significant challenges.

The chart below, from July’s MPR, shows that household spending patterns have shifted since the onset of the pandemic. Some of these shifts might last. In the central scenario, the effects of the downturn and lower immigration hold down housing activity over the next few years. After a near-term boost from pent-up demand, residential investment slowly increases as income and confidence recover.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

24 Jun

Property taxes are due on Wednesday, September 30th

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Posted by: Alisa Aragon

 

Due to COVID-19 most municipalities have delayed the payment of property taxes to September 30th. Typically they are due on July 2nd of every year.

Please double check on your property tax notice when they are due as each municipality could be different.

Remember 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 Home Owner Grant online. It is as simple as visiting your municipality’s website and look for the link to apply for your Home Owner 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 by a 5% penalty if you don’t pay your property taxes or claim the grant by September 30th, 2020.

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, please don’t hesitate to contact me should you have any questions.

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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! We will get through this together!

With gratitude,
Alisa