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What can mortgage shoppers expect in 2015? Here are five predictions

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1. More mortgage restrictions to come With Ottawa paring down its mortgage exposure, the Bank of Canada estimating up to 30 per cent overvaluation in Canada’s housing market, over-indebted consumers and average home prices incessantly breaking records, policy makers will restrict the mortgage market yetimage again. New limits on government-backed mortgage funding will make it more expensive for lenders to fund mortgages, or new underwriting rules will make it harder to qualify for a mortgage. Maybe both.

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CARRICK TALKS MONEY Video: Carrick Talks Money: The mortgage that marries you to your lender 2. Record discounts for variable mortgage rates Lenders’ funding costs should continue to improve for variable-rate mortgages in the next twelve months. As a result, we’ll see a small number of lenders and/or brokers advertising discounts better than prime minus one per cent before the end of 2015.

3. Brokers will break into three camps Mortgage brokers will split into three camps in 2015: Full-service brokers who create detailed mortgage plans to support one’s financial goals, online mortgage brokers who provide less advice for a lower rate, and your run-of-the-mill everyday broker. That latter type will suffer job losses in 2015 as their rates and service offerings prove uncompetitive relative to other brokers, banks and credit unions.

4. A glut of private money Alternative mortgage lenders – such as mortgage investment corporations (MICs) – will grow flush with cash, as investors chase higher yields and as Ottawa’s stricter mortgage rules create opportunity for them. That abundance of capital will motivate sub-prime lenders to take more risk in search of higher returns. In turn, we’ll see some of them offer mortgages with only 10 or 15 per cent down, instead of the traditional 20 to 25 per cent equity The result: Credit-challenged consumers will have more lending options at lower interest rates.

5. Brokers will pitch you other stuff Don’t be surprised if your mortgage broker offers you other financial products. Declining margins will motivate many brokers to diversify their revenue streams. They’ll take a page from banks’ playbooks and cross-sell you everything from GICs, to insurance, to credit cards, to RRSPs.

Robert McLister is a mortgage planner at intelliMortgage Inc. and founder of RateSpy.com.

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Family dreams of leaving city for less expensive life in small town

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For city-dwellers such as Iris and Ryan, the birth of a first child often prompts thoughts of leaving urban living behind for less-expensive digs in a small town where they will be closer to family.

But is it worth the likely drop in iimagencome and diminished job prospects?

Iris, who is on mat leave with a three-month old baby, has a management job grossing $107,000 a year. Ryan brings in $50,000 annually working as a house painter. They are planning to have a second child and wonder if Iris can afford to work part time to spend more time with the children.

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“We are considering moving to a smaller community to be closer to family and use the equity in our home to be either mortgage-free or close to it,” Ryan writes in an e-mail. “Is this a good idea?” he asks. They value their home at $675,000. They bring in $8,400 a year renting out their basement apartment, which they would continue to do in their new house if they moved.

They are concerned about earning and saving enough to pay for their children’s higher education and to maintain their current standard of living when they retire. Neither has a work pension plan. “How much will we need to set aside annually?” Ryan asks. He is hoping to retire by age 60.

We asked Jason Pereira, a financial planner and investment adviser at Bennett March/IPC Investment Corp. in Toronto, to look at Iris and Ryan’s situation.

What the expert says

Selling their home and moving to a smaller town makes sense financially provided they can find work in the new location, Mr. Pereira says. It would also enable Iris and Ryan to pay down a fair amount of debt.

But there is a risk: It will lower their income substantially and may limit their career opportunities, the adviser says.

“If Iris is confident she can earn the $50,000 that she has projected, then they can be confident the move will not affect their ability to meet their desired goals,” he says.

They can use some of the proceeds from the house sale to pay off their debts and help fund their savings, Mr. Pereira says. Their new home will cost about $500,000, so they will have to take a mortgage of about $200,000.

“Once the move has been made, they can use all cash flow [after RRSP and registered education saving plan contributions] to pay down the mortgage. They will be debt-free in 11 years,” he estimates. He suggests they contribute $5,000 a year to each of their registered retirement savings plans (currently only Iris has one), rising with inflation. Once the mortgage has been paid off, any free cash flow should go first to their tax-free savings accounts (yet to be opened) and then to a joint investment account.

By the time they retire in 2036, they should have $840,000 in their RRSPs, $523,000 in their TFSAs and $80,710 in their joint investment account, Mr. Pereira estimates. This assumes an average annual rate of return on their investments of 7.4 per cent, or 4.27 per cent after subtracting inflation.

He recommends they open an RESP to take full advantage of the federal education savings grant, contributing $5,000 in 2015 to make up for not contributing in 2014. This will result in a government grant of $1,000. (The grant is 20 per cent for the first $2,500 you save in your child’s RESP each year, or $500, up to a maximum of $7,200 for each child.)

Starting in 2016, they should contribute $2,500 a year until the child reaches age 14 (that’s per child, taking into account their plans for a second). The year after that, he suggests they contribute $1,000 each. This will bring the total for each child up to $7,200.

Assuming the savings grow by 5 per cent a year, the children should have about $160,000 available to them. This will cover about three and a quarter years of schooling, so the rest could come from Iris and Ryan’s TFSAs or general cash flow. Mr. Pereira’s calculations assume tuition of $8,000 a year, rising by 8 per cent a year, and expenses of $1,000 a month for each child.

So can they get by if Iris makes $50,000 a year in the new location? The calculations assume Ryan makes $50,000 a year after the move as well.

Yes, their goals are achievable, Mr. Pereira says. For Iris, to work part-time in their city location could put a squeeze on their finances and endanger their goals, he adds. He notes they are short on insurance and recommends they get as much disability insurance as they can, especially since Iris is planning to change jobs and her new employer may not offer it.

***

Client situation:

The people: Iris, 34, Ryan, 38, and their three-month-old child.

The problem: Does it make sense to move to a smaller town to reduce their debt load sooner and improve their cash flow?

The plan: Sell the city home and buy in the smaller town. Pay down all debt except for a $200,000 mortgage. Plan to have the mortgage paid off in 11 years or so.

The payoff: Plenty of money for the children’s education and their own retirement.

Monthly net income: $5,885

Assets: Cash $13,000; her RRSP $45,000; residence $675,000. Total: $733,000

Monthly disbursements: Mortgage $1,300; property tax, insurance, utilities $650; transportation $430; groceries, clothing $450; home equity line of credit $200; gifts $50; vacation, travel $200; dining, drinks, entertainment $350; clubs, sports $140; grooming $25; pets $75; other personal discretionary $100; health and dental insurance $125; cellphones $125; TV, Internet $115. Total: $4,335

Liabilities: Mortgage $280,000; HELOC $28,000; family loan $25,000. Total: $333,000

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How to get your own ‘Vacation House For Free,’ according to this HGTV host

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HGTV host Matt Blashaw thinks the chief appeal of a vacation home is its convenience.

“It’s an easy vacation,” he explains. “The point is just to go have everything set up the way yoimageu want. You know the area, and you know you’re going to have fun.”

The vacation may be easy, but the second mortgage probably isn’t.

For that reason, Blashaw helps families on his show, “Vacation House For Free,” renovate under-the-weather homes into retreats worth renting out when the family isn’t in residence.

Of course, no house is actually free, but by earning money on the home when it would otherwise be vacant, homeowners can essentially get a vacation house that pays for itself.

“You’re contributing to your wealth and your future,” Blashaw says, “not throwing your money away on Hilton and Marriott. You’re building equity in what I think is the best investment anyone can have, which is real estate. Plus, people want to have a place they can retire to, so it’s a win-win.”

It’s not quite as easy as it sounds, especially if you’ve never undertaken a renovation. Here, Blashaw provides his top tips for turning your vacation home into a free home.

Related This 71-Year-Old Makes Up To $8,500 A Month Teaching Online Classes Here’s Why You Shouldn’t Let Your Credit Card Expire What 9 Successful People Wish They’d Known About Money In Their 20s Buy in a popular location.

Sure, homes are cheaper in under-the-radar locations, but if no one wants to go there, no one will want to rent your house. “The idea of the house is you want to be able to find a vacation home in a place that people want to go to,” explains Blashaw. “You want it to be popular. We’ve been to Cape Cod, Long Beach Island, Maine, the Florida Keys, Lake Tahoe.”

Choose a town that’s relatively easy to get to.

Bora Bora might be a great place to take a vacation, but it’s a little remote for a vacation home. “The thing I’ve been noticing with the show is that people want to take a vacation close to home,” Blashaw says, “typically within a couple hours drive. I think that’s simply because trying to put a family on a plane is a nightmare.”

Realize that you might not be able to use it during the high season.

Flickr / Mt. Hood Territory

Your vacation home should be in a popular area, like a ski resort.

Depending on your area, Blashaw says, there might be a busy season of 10-16 weeks — and you might need to rent during that time. “People have to be OK with not being there during the season,” cautions Blashaw.

“You can get the most weekly rental rate and the most people desiring the property. Your vacation home isn’t for free unless you have people in it!” he says. There’s a bright side, however: “A lot of people who own vacation homes don’t even want to be there in the high season because it’s so crowded.”

Scout the most popular local rentals.

Figure out what renters in the area want, so you can give it to them. “If you’re looking in an area you want to buy a vacation home, go tour the house that’s a really popular rental,” recommends Blashaw. “What makes it so popular? Proximity to the beach or water activities? How it’s decorated? The kitchen? See what they did to find out what renters in those areas want, then take those ideas and put them into your rental. Make sure you know what rents out all the time so your house will rent out all the time.”

Blashaw notes that you can check listings online at sites like VRBO to see which houses tend to be booked solid, then call the property managers to schedule a tour — or even just go through their photos.

Do the math.

Your vacation home isn’t free if you’re not earning enough to offset the money you put into it. Blashaw recommends calculating the carrying cost, mortgage, taxes, utilities, insurance, and any other costs on an annual basis.

“Then you need to renovate and figure out how many weeks you need to rent at x dollars to have your vacation house for free,” Blashaw explains.

Don’t think you have to renovate the whole place.

Flickr / Ian Gratton

Renters should feel just as at home as you do.

While you might be tempted to gut the place, Blashaw recommends being mindful about your renovation and starting with the highest priority areas.

“The rule of standard suburban houses is kitchen is king, then bathrooms, then bedrooms,” he says.

“In vacation rentals, I think it’s a little different. Bathrooms can be overlooked as long as they’re clean and fresh and functional. You need to put money in the decor in the living room, in the furniture to make it comfortable and cater to possibly multiple families with a ton of seating and dining space.”

And if you’re pressed for time (or money), Blashaw has one particular recommendation: “When people walk into a place, they want it to be fresh and clean,” he says. “Nothing will make a space seem cleaner and fresher a than a coat of paint.”

Plan to make renters’ lives as easy as possible.

Once your house is in renting shape, your priority is to fill it — and that can be as easy as putting up a listing on Airbnb, VRBO, or Homeaway.

Blashaw says that by making your house a pleasure to visit, you can ensure repeat renters. “I tell people, ‘If you’re by the beach, make it so that your renters don’t have to do anything but buy groceries and sit in the house.’ Buy a beach wagon, a paddle board, give them a list of restaurants and things they can do. You want your property to be a destination for them every year just like it is for you. I know couples now who don’t even have to market their properties anymore because they have ongoing rental agreements. You have to give them a reason to come back.”

U.S. rental home shortage lining the pockets of big corporate landlords

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Corporate landlords are benefiting from the worst U.S. rental-housing shortage in more than a decade as construction trails demand and more Americans opt to lease rather than buy.

There’s an undersupply of single-family housesimage and apartments to rent for the first time since 2001, according to an analysis by Frank Nothaft, chief economist at mortgage buyer Freddie Mac, based on available inventory and historic vacancy rates. The deficit in the third quarter was about 350,000, the most in records dating back 14 years.

The shortage is giving the upper hand to institutional investors who spent more than US$25 billion since 2012 buying single-family homes to rent. While the market for apartments has been in favour of landlords for five years, owners of houses are now able to increase rents and reduce turnover to boost profits.

“It’s that supply-demand equation that allows us to get aggressive about raising rents,” Stephen Schmitz, chief executive officer of American Residential Properties Inc., a landlord with more than 8,500 homes, said at an investor conference this month. “Three years ago, you would go to raise somebody’s rent and they could say, ‘I’ll go down the street and pay US$100 less than I’m paying you now.’ But today they can’t because all those houses down the street are occupied.”

The U.S. rental-vacancy rate fell to 7.4% in the third quarter, according to Census Bureau data. The market is considered balanced, with neither landlords nor tenants having the upper hand when it comes to rents, at a vacancy rate of 8.2%, based on the average from 1994 through 2003, according to Freddie Mac’s Nothaft.

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The housing surplus peaked at almost 2 million units, including 1.2 million rentals, in the third quarter of 2009, when foreclosures were soaring and years of speculative construction led to a glut of empty houses.

“The surplus of vacant housing has shrunk over the last few years because there has been household growth and limited new construction,” Nothaft said in a telephone interview. “In most markets and in the national data, what we’ve observed is that rents have been rising faster than inflation.”

Rents on all single-family homes and multifamily units are expected to climb 3.5% next year, compared with a 2.5% increase for home purchase prices, according to estimates this month by Zillow Inc. Chief Economist Stan Humphries. The U.S. inflation rate was 1.3% in November, with a goal of 2% set by the Federal Reserve.

Wall Street-backed landlords already are enjoying higher rents for single-family homes in markets hit hardest by the housing crash, where they first started buying in bulk.

Rents Rise

The average monthly rent for a three-bedroom home in Phoenix surged more than 9% this year to US$1,158, data from Westminster, Colorado-based RentRange LLC show. Houses now lease about 10 days faster than apartments, according to a report this week from the Center for Real Estate Theory and Practice at Arizona State University.

In Las Vegas, rents on houses rose more than 3% to a median of US$1,248 in the 12 months through November, according to RentRange. In Orlando, Florida, they climbed 5% the same month to $1,294.

A reviving job market is driving household formation and fuelling demand for homes faster than builders are delivering them. In the Orlando area, for example, 56,000 jobs were added in the 12 months through October, benefiting landlords such as Aaron Edelheit, chief executive officer of Atlanta-based American Home, a rental company with 2,500 houses, including about 200 in central Florida.

Housing Shortage

“They’re not producing many entry-level homes,” he said in a telephone interview. “That’s what creates housing shortages, and it’s going to drive up the price of rents.”

Raising rents is likely to become a higher priority for institutional single-family landlords next year as they get a better grip on operations and how higher rates affect their pace of leasing, said Anthony Paolone, an analyst with JPMorgan Chase & Co. who follows real estate investment trusts including American Homes 4 Rent and Silver Bay Realty Trust Corp.

Investors have positioned themselves to house some of the former owners of 5 million homes lost to foreclosure since the real estate crash, according to research company CoreLogic Inc. Many of those former owners prefer houses over apartments because they want more space for their children and pets. Landlords also are getting a boost from some of the 75 million millennials — 18-to-34-year-olds — who are starting out as renters rather than buyers.

‘Bit Disillusioned’

The typical family renting a house from American Homes 4 Rent, an Agoura Hills, California-based REIT with more than 30,000 single-family homes, is in their mid-thirties with an annual income of US$80,400, enough to afford to buy if they wanted to, according to CEO David Singelyn.

“Many of these kids saw their parents lose their home, and they’re a little bit disillusioned,” Singelyn said at the Information Management Network Single Family Rental Investment Forum in Scottsdale, Arizona, on Dec. 4. “How long will that last? I don’t know. But today there’s a significant movement to becoming a renter nation as opposed to an owner nation.”

Those tenants often pay a premium to rent from new firms like American Homes 4 Rent, which mostly owns houses less than 12 years old near good schools and provides better service than mom-and-pop landlords, Singelyn said. They also move less often, with 68% of tenants opting to stay in the most recent quarter when their lease came up for renewal, compared with less than 50% for apartments, he said.

Blackstone’s Rents

Blackstone Group LP’s Invitation Homes, the largest single-family landlord, with more than 46,000 properties, as of Sept. 30 raised rents an average of 1.8% to US$1,474 from a year earlier on 3,200 homes that were financed through the industry’s first mortgage-backed security deal, according to Kroll Bond Rating Agency.

“We’ve seen strong demand for our homes in all 14 markets we operate,” said Denise Dunckel, a spokeswoman for Dallas-based Invitation Homes. “That’s just an indication that there’s a large market that likes the flexibility that renting provides.”

American Homes 4 Rent raised rents 3% on renewals and 4% for new tenants in the third quarter, Singelyn said during a Nov. 3 conference call. American Residential Properties increased rents an average of 3.4% from a year earlier on renewals, while Silver Bay’s rents rose 3% on renewals.

Seasonal Fluctuations

Some of the recent rent increases and reduced turnover may be a result of seasonality, with fewer people moving in late autumn and winter, said Jeff Brock, CEO of Key Property Services, a Marietta, Georgia-based real estate investment and management company he founded in 2001.

“People don’t move during the winter unless they have to,” said Brock. “If the increases we are getting in the seasonal tightness hold up this spring and summer, when vacancy cyclically increases, then you are seeing an institutional effect on the way rents are going.”

Single-family landlords also face limits on their ability to raise rents because tenants with expensive leases have more options than apartment renters, according to Dave Bragg, an analyst with Green Street Advisors Inc. in Newport Beach, California.

“Many apartment renters purposely pay a premium for convenience and superior sub-market locations,” Bragg wrote in report this week. “The highest-earning single-family renters will likely ultimately buy a single-family home.”

Family Affordability

While increasing rents may help the Wall-Street backed landlords, it may slow the recovery for families and communities hurt by the housing crash, according to Sarah Edelman, a policy analyst with the Center for American Progress, a Washington-based think tank aligned with Democrats.

“These companies can run profitable businesses without pushing rents higher than most families can afford,” she said.

Wall Street-backed firms have extended their purchasing even as property prices rise and low-cost foreclosures become harder to find, making it more important for them to charge higher rents to make a profit. Blackstone is spending as much as US$35 million a week on houses through Invitation Homes. While that’s down from last year’s peak of US$150 million a week, the company is still finding “attractive opportunities to invest,” Dunckel said.

Bulk Purchases

American Homes 4 Rent is spending US$500 million a quarter on property, an amount constrained by limits on the ability to raise capital.

The largest firms are buying some homes in bulk, snapping up pools from investors who began acquiring rental homes after values plunged 35% from their July 2006 peak and expected to sell when prices rebounded.

“We see lots of US$5 million, US$10 million and US$15 million portfolios,” David Miller, CEO of Silver Bay, said in an interview at the Scottsdale conference.

While walking from a panel discussion to the restroom, he was handed about 15 business cards from people interested in selling collections of homes.

“There’s still plenty of opportunity to buy,” he said.

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CMHC finally releases foreign ownership data on housing — too bad few believe it

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TORONTO • Foreign ownership in the housing market has become a bit of a bogeyman for people who fear a real estate collapse, so Canada Mortgage and Housing Corp. set out to identify whether it really is an issue.

CMHC tackles foreign ownership in Canada’s housing market for first timeimage

Some pockets of the country now have as much as 6.9% of condominium apartments foreign-owned, according to a survey from Canada Mortgage and Housing Corp. on the rental market. Read more Now that the results are in, there’s just one problem: Few people believe them. The Crown corporation Tuesday published the first statistics on foreign ownership, based on its semi-annual rental survey. In the the 11 major markets tracked, there was a broad range, from a high of 2.4% in Toronto and 2.3% in Vancouver to a low of only one-tenth of a percentage point in several cities.

It found to find some pockets of the country, certain parts of Montreal, for example, had Canada’s highest concentration of rental condos under foreign ownership — at 6.9%.

“This is the first time we’ve done anything like this so it’s hard to draw too many conclusions,” said Bob Dugan, chief economist with CMHC. “It’s a pretty good first measure, especially because condos are a pretty good way to capture foreign investors. We’re not trying to say it’s an exhaustive measure of foreign activity. It is a data gap and people are concerned about it. So our approach is if we have one of pieces of the puzzle, let’s put it out there.”

CMHC did find there was a larger concentration of foreign ownership in downtown pockets of Canada’s three largest cities. The survey found that downtown Montreal and Nun’s Island had a foreign ownership rate of 6.9% to lead the country. Vancouver’s Burrard Peninsula had 5.8% penetration, while in Toronto’s core it was 4.3%.

The overall numbers were much lower with Toronto leading with 2.4% of all its condominium apartments foreign-owned; Vancouver second at 2.3%; followed by Montreal at 1.5%. Next was Victoria (1.1%), Ottawa (0.7%), Quebec City (0.6%), Saskatoon (0.3%), Calgary (0.2%) and Edmonton, Regina and Winnipeg (each at 0.1%).

To comprise its data, CMHC asked property managers to provide information on the total number of condo apartment units owned by people whose permanent residence is outside of Canada.

Related Tracking foreign buyers in Canada’s housing boom: Can we do it? Should we even care? Subprime lending market in Canada skyrockets to record as banks tighten reins CMHC to hike issuer fees and mortgage rates could follow The move came after the Crown corporation was criticized for conducting a survey of the Toronto and Vancouver condo markets that left out the all-important foreign ownership question. CMHC’s president, Evan Siddall, has committed to erasing some of the “data gaps” relating to ownership by non-residents,

“I think it’s better to say something, if you know something, than nothing at all and wait for the perfect answer,” said Mr. Dugan.

One of the general fears of foreign ownership is that a sudden sell-off of condominiums by non-residents, driven by events outside of Canada, could trigger a collapse in the sector.

Brad Lamb, a developer with projects in Toronto, Edmonton, Calgary and Ottawa, said the numbers produced by CMHC don’t come close to what he sees in his sales office.

“I don’t think the number is accurate and there is no way you can get a true reading on [foreign ownership] unless you mandate everyone to come out and disclose what they own,” said Mr. Lamb. “It’s a silly statistic. What they have produced has zero value.”

Mr. Lamb said the concern is misplaced because the foreigners buying real estate today have their money parked in Canada because they want an investment in a stable climate. He added foreign investment has helped create demand in the condo sector and keep it strong.

There is little doubt that condos, which foreigners have been buying, are a key component of the rental market in Canada. In the markets surveyed by CMHC, rental condo units totalled 216,007 of the total 1,286,148 apartments, with the share is growing.

Benjamin Tal, deputy chief economist with CIBC, said foreign ownership levels in the condo market would probably be higher, depending how the investment is calculated.

“Is it a pure foreign investment? They are talking no connection whatsoever to Canada. No family member here. Nothing,” said Mr. Tal, adding in many cases you have someone living here with the money coming from abroad. “The number is higher, if they include that.”

Subprime lending market in Canada skyrockets to record as banks tighten reins

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Simageubprime lenders’ share of the Canadian mortgage market has reached record levels, according to data obtained by the Financial Post, putting increased risk on the housing market.

Alternative lenders, who are major beneficiaries of that subprime market, now underwrite 2.2% of all mortgage loans — probably not enough to cause any major structural damage to the housing market in the event of defaults, but their market share has exploded.

The data, compiled by CIBC World Markets based on Statistics Canada figures, shows that the value of loans from alternative lenders grew by 25% during the past year while the overall market for mortgages increased by 4% during the same period. The Statistics Canada data was derived from information obtained from Revenue Canada.

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“It’s a small segment of the market still, but it is rising quickly,” said Mr. Tal, who used tax data and balance sheet and income statement information of non-depositary financial institutions as a proxy for alternative lenders.

Subprime loans have been partially blamed for the collapse of the United States housing market and the 2008 recession, and Mr. Tal says there is little doubt the loans in the alternative lending space are subprime ones that none of the major lenders will take.

“But remember subprime can be someone like a plumber,” he said, referring to self-employed workers, a segment of the market that Canada Mortgage and Housing Corp. has mostly abandoned when it comes to backing loans. “You should also remember that sub-prime is a normal part of a healthy functioning market. The U.S. was able to function with 5% of the market [in sub prime loans] for 40 years with no problem, [but] when it goes to 33%, that’s a problem.”

Among the factors bolstering non-bank mortgage lenders in Canada is that the country’s big banks have been tightening lending standards in response to moves by the federal government and CMHC to try to rein in household debt and cool the housing market.

Industry watchers say Canada’s major mortgage lenders are turning away loans they previously accepted.

“When you talk to the management teams of the [non-bank firms], they definitely believe that the banks continue to tighten their underwriting, and mortgages that could have been done by a bank one, two, or three years ago are being rejected,” said Stephen Boland, an analyst at GMP Securities Inc.

Mortgage brokers are bringing these loans to the non-bank lending firms such as Home Capital Group Inc. and Equitable Trust, he said.

“It’s good-quality stuff,” Mr. Boland said. “Anything that just misses a bank is considerably stronger than some of the traditional business that those firms have done.”

Ottawa’s tougher lending regime has created an opening in the mortgage market for other lenders. Credit unions, for example, aren’t bound by federal rules because they are provincially regulated. And though they are not considered alternative or subprime lenders, credit unions have been expanding their share of the residential mortgage market, which now sits at 6.8%, according to Credit Union Central of Canada.

“There’s no question that B-20 and then B-21, plus other rules, are creating demand for alternative lending sources,” said Finn Poschmann, vice-president of policy analysis at the C.D. Howe Institute, referring to the recent regulations put in place by the Office of the Superintendent of Financial Institutions, which supervises banks as well as mortgage default insurance companies.

He said the demand is especially strong from “among higher risk borrowers.”

Another factor is a recent cap placed on NHA mortgage-backed securities, which has led to more lending by less-regulated firms. That market has grown “leaps and bounds” since 2013, Mr. Poschmann said.

Eli Dadouch, chief executive of publicly traded Firm Capital Corp., which has been in the non-bank lending sector since 1988, said there is a lot of money in the market today looking to be deployed.

“I get Americans calling me up all the time saying they want to come up here, but it’s not big like the U.S.,” said Mr. Dadouch, whose firm has about $1-billion outstanding in bridge financing.

He said there is no question it’s the top of the real estate cycle, so anybody lending out money has to be more careful today.

“People always want to deal with a bank, it’s the cheapest form of money,” he said. “When they come to us and people like us, it is because there is some type of story [behind why they can’t get credit]. It’s easy to lend money, the talent in this business is getting it back.”

Houses might not be as overvalued as the Bank of Canada thinks, Moody’s report suggests

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A new report from Moody’s Analytics suggests the Canadian housing market has seen some “structural changes” that might justify today’s prices.

image“One possibility is that two decades of lower and more stable mortgage rates, together with regulatory safeguards, have raised the risk-adjusted return on housing investments,” said Mark Hopkins, author of the Moody’s report. “This would shift readings such as the ratio of house prices to rents and to median incomes upward.”

The Bank of Canada caused a stir this week when it suggested that housing may be anywhere from 10 to 30% overvalued although it downplayed talk of a crash.

Related Bank of Canada warns house prices are overvalued by up to 30% Bank of Canada providing ‘forward confusion’ about state of housing market “This is comparable to levels reached in 1981 and 1990, periods followed by significant price declines as interest rates rose and the economy went into recession. Nevertheless, the BoC said the recent upward creep in valuations has been more gradual, pointing toward a softer landing,” wrote Mr. Hopkins.

He suggested risks factors around housing are significant but overvaluation depends on on the region in the country.

Mr. Hopkins said Canadian housing is a little less than 15% overvalued nationally with some major variations in some metro areas. He noted Toronto and Vancouver are heavily weighted in the national number, leading to the perception that housing is overvalued.

“Price growth since 2000 looks less like a speculative bubble and more like a reflection of structural changes affecting traditional valuation metrics,” said Mr. Hopkins. “Similar changes could result from changing preferences, including the rising urbanization rate and the popularity of homeownership among immigrants, now the main contributors to Canadian household formation.”

Moody’s Analytics does say growth in Canadian house prices will slow through 2017 as interest rates go up but price growth will resume after that and will start to match income growth.

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Canadian home prices fall for first time in a year: Teranet

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TORONTO — Canadian home prices fell in November from a month earlier, their first monthly decline in a year, the Teranet-National Bank Composite House Price Index showed on Friday.

The index, which measures price changes for repeat sales of single-family homes, showed national home prices fell 0.3 per cent last month. Prices were still up 5.2 per cent from a year earlier.

imageMore to come …

Related Homebuyers expected to take hit as CMHC triples fee it charges banks to guarantee loans Canada among the world’s hottest property markets © Thomson Reuters 2014 LATEST PERSONAL FINANCE VIDEOS

CMHC to hike issuer fees and mortgage rates could follow

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Canada Mortgage and Housing Corp. is tripling the fee it charges some financial institutions to guarantee loans in the mortgage-backed securities market, a move that could end up costing consumers more, the Financial Post haimages learned.

The move appears to be aimed at the government’s stated goal of reducing its role in the mortgage insurance market but it just might have the added benefit of applying a bit more in the way of brakes to the housing market, which the Bank of Canada said this week might be as much 30% overvalued.

Rob McLister, the founder of www.ratespy.com, said there’s little doubt in his mind that the changes will end up costing new home buyers and estimates it will mean about $600 on a typical first-time buyers’ mortgage of $250,000.

Related Pay off your mortgage or invest? How to figure out what’s best for you Great news coming if you’re renewing a mortgage, you’re about to save money ‘I did mess up’: Even the experts admit mistakes on picking a mortgage “There is no question this is going to increase mortgage rates for consumers, all other things being equal. This is a direct cost to the issuers of mortgage-backed securities,” said Mr. McLister, adding it could mean a jump of as much as 10 basis points on a five-year closed mortgage. “Sure, it might not stop people from buying houses but it is money coming out of people’s pockets.”

Among its many roles, CMHC also operates the mortgage-backed securities market under the National Housing Act. Under the program, CMHC guarantees timely payment of principal and interest on NHA MBS issued and backed by pools of eligible loans, charging a fee for that service.

The Crown corporation told issuers this month it will dramatically raise those rates. On mortgages with maturity in the five-year range range, the fee will jump from the current .20% of the value of a mortgage to .60% for annual guarantees that exceed $6 billion from a financial institution. The fee only increases to .30% for annual guarantees below $6 billion — a move that might benefit some smaller lenders.

The moves are effective April 1. “These changes are being made in support of the government’s efforts to enhance the Canadian housing finance framework by encouraging the development of alternative funding options in the private market,” CMHC said, in a notice to issuers.

Ottawa backstops close to $1 trillion in mortgages and the government, dating back to late finance minister Jim Flaherty, has indicated it wants to slowly reduce its exposure to the housing market.

Evan Siddall, president of CMHC, has signalled a move to scale back the federal government’s exposure and confirmed in a discussion at the Canadian Club in October that CMHC continues to study the idea of the banks having some sort of deductible in the event of mortgage defaults.

Anyone borrowing from a financial institution regulated by Ottawa must get mortgage default insurance if they have less than a 20% downpayment. Only loans with mortgage default insurance can be put in the NHA MBS program.

The latest fee increases are probably not directly aimed at slowing down the market, despite the concerns raised by the Bank of Canada, said Benjamin Tal, deputy chief economist with CIBC. Bank of Canada governor Stephen Poloz said Wednesday there is risk a shock to the economy could trigger a correction in prices that may be overvalued from 10% to 30%.

“This isn’t part of slowing down the market,” said Mr. Tal, about the latest changes at CMHC. “It would be a nice derivative but it’s an effort to lower the size of CMHC relative to the size of the market. What you are seeing from CMHC is that instead of taking one big step, they are taking baby steps.”

Ottawa has made a number of changes to mortgage rules during the housing boom to cool the market and limit its exposure, one being lowering amortization lengths from 40 years to 25 years.

Peter Routledge, an analyst with National Bank, said it’s not one single change that illustrates the transformation at CMHC.

“They don’t want to do anything dramatic that upsets the housing market, that’s bad for everyone and worse for the government because they hold the credit risk,” said Mr. Routledge, who notes when you look at market over six years you see the changes. “It has prevented a more excessive build-up of household credit.”

Canada among the world’s hottest property markets

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Housing prices continue to grow at a red-hot pace in many parts of the world.

The Global Property Guide has compiled and analyzed the property price performance of the world’s big economies.

We’ve put together a list of the top 16 markets based on year-over-year, inflation-adjusted priimagece performance as of Q3. The chart accompanying each slide shows the year-over-year percentage change in house price.

Related The 25 Cheapest Housing Markets In America What $1 Million Buys You In New York City Canada’s Magnificent Housing Bubble Is At Risk, Fitch Says

16. New Zealand

Global Property Guide Home prices in New Zealand rose 5% year-over-year, which was a slowdown from 2013’s increase of 7.82%.

Prices fell 1.64% during Q3 2014.

Source: Global Property Guide

15. Canada

Global Property Guide Home prices in Canada rose 5.35% year-over-year, which was greater than 2013’s increase of 2.68%.

Prices rose 2.23% during Q3 2014.

Source: Global Property Guide

14. Latvia

Global Property Guide Home prices in Latvia rose 5.78% year-over-year, which was greater than 2013’s increase of 2.02%.

Prices rose 0.63% during Q3 2014.

Source: Global Property Guide

13. Indonesia

Global Property Guide Home prices in Indonesia rose 5.93% year-over-year, which was a slowdown from 2013’s increase of 13.51%.

Prices rose 0.89% during Q3 2014.

Source: Global Property Guide

12. Israel

Global Property Guide Home prices in Israel rose 6.43% year-over-year, which was a slowdown from 2013’s increase of 8.03%.

Prices rose 2.56% during Q3 2014.

Source: Global Property Guide

11. South Africa

Global Property Guide Home prices in Israel rose 7.99% year-over-year, which was greater than 2013’s increase of 3.89%.

Prices rose 1.52% during Q3 2014.

Source: Global Property Guide

10. The Philippines – Makati CBD

Global Property Guide Home prices in the Phillipines rose 8.11% year-over-year, which was a slowdown from 2013’s increase of 13.78%.

Prices rose 3.38% during Q3 2014.

Source: Global Property Guide

9. Hong Kong

Global Property Guide Home prices in Hong Kong rose 8.27% year-over-year, which was a slowdown from 2013’s increase of 12.72%.

Prices rose 6.19% during Q3 2014.

Source: Global Property Guide

8. Iceland

Global Property Guide Home prices in Iceland rose 8.65% year-over-year, which was greater than 2013’s increase of 6.02%.

Prices rose 2.00% during Q3 2014.

Source: Global Property Guide

7. Australia

Global Property Guide Home prices in Australia rose 9.23% year-over-year, which was greater than 2013’s increase of 8.29%.

Prices rose 1.63% during Q3 2014.

Source: Global Property Guide

6. Brazil – Sao Paulo

Global Property Guide Home prices in Brazil rose 10.26% year-over-year, which was a slowdown from 2013’s increase of 13.30%.

Prices rose 1.88% during Q3 2014.

Source: Global Property Guide

5. The UK

Global Property Guide Home prices in the UK rose 10.47% year-over-year, which was greater than 2013’s increase of 4.28%.

Prices rose 1.21% during Q3 2014.

Source: Global Property Guide

4. Estonia (Tallinn)

Global Property Guide Home prices in the UK rose 14.68% year-over-year, which was a slowdown from 2013’s increase of 15.54%.

Prices rose 2.15% during Q3 2014.

Source: Global Property Guide

3. Ireland

Global Property Guide Home prices in Ireland rose 14.96% year-over-year, which was greater than 2013’s increase of 3.65%.

Prices rose 6.23% during Q3 2014.

Source: Global Property Guide

2. Turkey

Global Property Guide Home prices in Turkey rose 17.01% year-over-year, which was greater than 2013’s increase of 12.93%.

Prices rose 4.56% during Q3 2014.

Source: Global Property Guide

1. UAE – Dubai

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