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How cracking down on temporary foreign workers could hurt home values

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The complaints against Ottawa’s tightening up on permits for imagetemporary foreign workers has so far come mostly from Western Canadian restaurateurs, business associations and politicians. But opposition could catch on a lot more widely if homeowners were aware that the federal government’s crackdown could drive down residential property values.

That’s because part of the glue still holding Canada’s relatively robust housing market together might just be non-permanent residents whose numbers have swelled to all-time high, according to a new report.

Benjamin Tal, deputy chief economist with CIBC World Markets Inc., isn’t ready to predict a housing crash if the government continues to get tough on temporary workers, who make up half of Canada’s non-permanent residents, but he cautions policy-makers to proceed slowly with changes.

“It’s not an insignificant element in the mosaic we call the housing market… especially in the rental market,” said Tal. “You can assume many of these people rent and [that affects] investors and the condo market.”

Audrey Macklin: And just like that, you’re an illegal immigrant

On April 1, 2015, the Canadian government will launch a new industry. Citizenship and Immigration Canada will begin manufacturing “illegal immigrants.”

Read more Non-permanent residents now number almost 770,000. Temporary workers make up half that figure, or 385,000, while students are about 290,000. The rest of the group falls into the humanitarian or refugee category.

Tal said Ottawa is underestimating the growth of the non-permanent residents demographic, which Statistics Canada said will grow by 4.4 per cent in 2014. He said when the numbers are finally tallied, it will be no less than eight per cnet.

And those non-permanent residents are increasingly becoming professionals. “If you look at the number of people who require a university degree or some type of advanced degree it is advancing faster,” Tal said. “They will probably be spending more and their chances of becoming permanent is better.”

Ottawa has been tightening the rules on temporary foreign workers, overhauling the program in 2014 by establishing restrictions on how many temporary foreign workers could be hired by a single employer, as well as limits on hiring temporary foreign workers in regions of the country with high unemployment rates.

Toronto immigration lawyer David Rosenblatt said temporary workers are also facing a tougher task to become permanent residents, making Canada a less attractive option to start with.

He said Ottawa has created a complex points system that has made permanent residency less predictable than it was under older rules.

“You could go to school for four years, works for three years and you don’t know if you get selected. It depends on how many points you have compared to everyone else,” said Rosenblatt.

Tal can’t say how many of those non-permanent residents may actually be purchasing housing but anecdotal evidence from realtors suggests many overseas are buying on behalf of students.

Those people are likely buying with cash because credit rating agency Equifax Canada said it’s very difficult for non-permanent residences to get credit and even new immigrants can’t get financing easily.

Related Non-permanent residents might be the secret ingredient in Canadian housing market RESP: The tax-free account Canadian parents forgot about Bump-up for TFSA in 2015 doesn’t have to wait for the budget to be passed “There is a common misconception that providing credit to new immigrants is a risky move for financial institutions, but the fact is that immigrants have a 20 per cent lower delinquency than the national average of the general population,” said Regina Malina, senior director of decision insights at Equifax.

Tal said with non-permanent residents the fasting growing demographic in Canada, Ottawa should offset any changes to the temporary workers program with a boost in immigration.

“The pace at which this category is growing is also unprecedented,” Tal wrote, adding that, over the last 10 years, 450,000 non-permanent residents have been added to the country. “They should be viewed as an important demographic force capable of influencing and potentially altering the trajectories of macro-economic variables such as housing activity and consumer spending.”

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things come in small packages for millennial buyers

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This is the second in a series of stories looking at the challenges faced by different generations of people who are in the market for a home – from first-time buyers, to growing families, to boomers who are downsizing.

A property investor recently walked into the marketing office for a Surrey, B.C., condo tower and asked to purchase 100 units. CARRICK TALKS MONEY Video: Carrick Talks Money: Listen uimagep, parents: Gen Y’s financial problems will cost you

CARRICK TALKS MONEY Video: Carrick Talks Money: Millennials want it all, just like their parents Millennials often have many close friends at work. But as they become managers, like those in generations before them, they will have to renegotiate relationships. PERSONAL FINANCE Video: Young people considering RRSPs should ask themselves three questions Marketer Vince Taylor couldn’t completely fulfill his wish, because one person owning one-quarter of the units in a building would present challenges for a strata council. But it wasn’t anything unusual, he says. The investor market is thriving, in large part because an influx of millennials is fuelling both the rental and purchasing markets.

“There’s an appetite in the investment community to purchase as many units as they can get,” says Mr. Taylor, partner with Platinum Project Marketing.

Rents are high and interest rates are low. And millennials are either renting or purchasing condos – a dream scenario for both investor and developer. The young market that is purchasing those condos is buoyed by the low interest rates, as well as the arrival of small, affordable condos. Some of those condos are even micro-sized.

The 36-storey, 406-unit Evolve tower in Surrey includes 316-square-foot micro condos priced at $93,900, marketed as “the most affordable homes in Canada.” To make it even more appealing to young buyers, the developer is offering to cover the bulk of mortgage payments so that the smallest units will cost $1 a day, or $30 a month.

“We will pay the difference for you in the first year,” says Mr. Taylor.

Developers with the millennial market in mind are choosing Surrey because it’s one of the fastest growing cities in Canada, with an estimated 1,200 people moving there each month. One-third of the city is under 19, a ready market for the future.

“We get people who say, ‘I wouldn’t want to live in this. It’s too small,’” says Mr. Taylor. “But if you’re 18, it’s awesome. The kid is tired of living in mom and dad’s basement. He’s working, making $15 an hour and now he can afford [to buy]. And he gets stainless steel appliances and granite counters.”

The condo market used to be driven by people who were downsizing and looking for something convenient, smaller and manageable. But it’s now driven by affordability, says Mr. Taylor. Young adults are often pushed into the market by parents who are concerned that they’ll miss out on their chance to be a homeowner.

People between their early 20s and mid 30s are driving the condo market across Canada, fuelling markets in Vancouver, Calgary, Edmonton, Saskatoon, Toronto and Montreal. Montreal and Saskatoon are particularly hot condo markets right now, says Mr. Taylor, whose company has projects in those cities, as well as Surrey and Calgary.

In Calgary, the 25 to 34 year olds have accounted for 62.5 per cent of the population growth downtown between 2010 and 2014, says real estate researcher Matthew Boukall, for Altus Group.

“We can’t prove that all of the young people moving to the downtown are owners, but I’d infer that at least 50 per cent are,” says Mr. Boukall.

More than 25 per cent of the buyers are getting financial assistance from parents and grandparents, says Mr. Taylor. He calls it “a Canada-wide phenomenon.”

That’s because there’s still a strong cultural belief in the power of real estate, the idea that to own is integral to one’s financial security.

“We know that if we ask that millionaire, ‘Did you rent all your life?’ the answer will be, ‘No,’” he says.

Winyee Leung just purchased her first condo in Vancouver’s Mount Pleasant neighbourhood with her parents’ encouragement. Ms. Leung, operations manager at a software company, bought her 683-square-foot condo for $450,000. She had been happily renting around Cambie Street for years, but when her parents offered to help finance her, she took them up on the offer. She was also motivated by her 2.2-per-cent interest rate, and the $950 mortgage payment compared to her $1,200 rent. With her parents’ help, some savings, and money borrowed from her registered retirement savings plan, she managed a $200,000 down payment.

“I’m single, I don’t intend on having any kids, and I really need to start planning for my future, pronto,” says Ms. Leung, who grew up on Vancouver’s west side. “So that’s why I started looking.”

Ms. Leung is fairly typical of a lot of young Vancouverites. She chose her east side neighbourhood because it’s central to downtown, it’s walkable, and close to transit. She seldom drives a car.

“I have several friends who are renting and looking to get into the market, and they are struggling,” she says. “They are realizing how competitive it is, how expensive it is getting.

“These are solid young professionals. They make pretty good money, but it’s a little scary.”

The scary part is, if they don’t get into the market now, they worry they never will, she says. However, they also don’t want to live in something that will lower their standard of living, so they continue to rent.

Developer Jon Stovell of Reliance Properties specializes in delivering housing to those young people who are eager to purchase real estate, and also willing to live small. He believes that the millennial market has a lot of untapped potential, but he says cities such as Vancouver aren’t keeping up, with their outmoded regulations.

He has led the way in the emergence of the micro condo, with units that are less than 300 square feet. He had tremendous success with the 30-unit Burns Block, in Vancouver’s downtown eastside. At around 264 square feet each, those rental units continue to be snapped up as they come available. It shows that there’s a strong young-adult market that is willing to trade space for affordability and walkability, he says.

He tried to apply the same model to a condo project in downtown Vancouver, but has come up against a city bylaw that says a condo can be no smaller than 398 square feet. Rentals are an exception. As a result, it will most likely be a rental project, with rents from $800 to $1,200 a month, he says.

Micro condos only work in dense, transit-oriented environments, or what Mr. Stovell calls “energy centres.”

“People who are 22 to 32 are so interested in these units,” he says. “They really want to be right in the city, where everything is happening. They are walking and biking everywhere they go.”

Mr. Stovell is working on his fourth micro condo project. He is about to launch sales for his Surrey project, which has a starting price of $139,900 a unit.

But he’s had success in Victoria, too, where his waterfront project had lineups down the street when presales were launched in 2012. Prices started at $110,000 and went as high as $160,000. They sold 122 units in five weeks. That project is under construction.

“There is a huge economic and lifestyle demand for [micro condos],” says Mr. Stovell. “But because of a lack of housing options, a whole segment of society is locked out of the market in Vancouver.”

House hunting? Here’s what $1-million buys in Toronto these days

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I love visiting open houses in expensive neighbourhoods. Touring rich people’s homes combines two of my favourite things: seeing how the other half lives and pretending to have buckets of money.

imageTo scratch my itch, I settled on the west-end Toronto neighbourhood of Roncesvalles, where houses routinely snag multiple offers and winning bids often exceed the million dollar mark. With High Park, good schools, transit, and adorable shops steps away, it’s easy to see why “Roncy” is a hot location for families.

Since I have a family and like things hot, I wanted in on the action. With my pretend million dollar budget burning a hole in my pretend home buyer’s wallet, I crashed a few open houses to see what a million bucks buys you in Roncesvalles.

My first stop was a two-and-a-half detached house with six bedrooms, three kitchens, and three bathrooms listed for $959,000, just steps from High Park. I’m not sure what half a storey is, but at a cost of $384,000 per floor I was pretend thrilled the lot had a backyard. The first house I visited in Roncesvalles. (All photos by Kerry K. Taylor for The Globe and Mail.) While dreaming about the rich Roncy lifestyle, I strutted into the open house. My heart sank.

The sinking wasn’t just due to disappointment, it was because the floor wasn’t level. Not letting first impressions deter me, I wandered into a dilapidated kitchen, dodged through every dingy bedroom, and failed to avoid the smell in all three bathrooms.

The place was wall-to-wall abysmal, a true “renovator’s dream.” With paint peeling off the walls, ceilings sloping over stained floors, and broken light fixtures for prospective buyers to see the light, it was obvious. Rich people live terribly.

I asked the real estate agent what she thought of the place.

“There’s no parking,” she said.

Parking? I was more concerned about the shifting floors. Besides, I don’t have a car.

“There’s a buyer for every property,” she said. “If you want parking, go see the beautiful dump down the street. It’s $1.3-million.”

The thing about pretend real estate shopping in hot locations is there are a lot of snoopy people pretending to afford the hot market too. I followed a group on foot in search of property with parking. The windows at The Abbey.

Located directly beside the The Abbey Lofts, a century old church converted into condos, the detached house with five bedrooms, five washrooms, a finished basement, and parking was something to see. Bathed in natural light with gleaming floors, new appliances, and stained glass windows reclaimed from the church conversion, this “beautiful dump” was priced at a cool $1,279,000.

I never wanted to pretend-buy a pricey house with unneeded parking more than now. Renting out that parking spot could be my ticket to affording the mortgage. I quickly crunched some numbers.

With a monthly mortgage payment of around $4,600, property tax at $5,850, land transfer tax of $43,400, and a bunch of closing fees, that parking spot would have to rent for far too much. I’d be better off pretend negotiating with the agent. The”beautiful dump.” I found Shawna Fletcher, a broker with HomeLife/Realty One Ltd., in the gleaming white kitchen surrounded by people asking questions. I had questions too. So in a later phone call, I asked Ms. Fletcher what the parking space was worth.

“The thing with parking is some people won’t even look at a house without it. Parking spots add around $50,000 to the price of the house,” she said, adding that searching for street parking in downtown Toronto and then slogging groceries to your house from a parking spot down the street can be “awful.”

Since detaching the parking spot would only save me fifty grand, I joined the mob of dejected house hunters outside and went in search of a more affordable million dollar property elsewhere, with parking. This house had a private driveway with an enclosed garage.

No one could miss the open house signs of Trish Mutch, sales representative with Keller Williams Neighbourhood Realty. The property poised for a bidding war was a semi-detached in the south-west pocket of Roncy. Listed at $859,900 with four bedrooms, one-and-a-half bathrooms, a fully renovated kitchen, and a backyard with deck, the real star of the show was the private driveway with enclosed garage.

Inside, the place was immaculate. Packed with serious couples and a few angry toddlers, the spacious kitchen didn’t feel like a semi at all. With granite counters, gas stove, and newer cabinets, it felt like home.

I was into this house, so I did the mortgage math. With 20 per cent down, the payment would be around $3,100 a month. Add in property tax, land transfer, lawyer fees and moving, and I had to wonder who could afford these modest million dollar homes. The renovated kitchen. So I asked Ms. Mutch.

“It’s a lot of families, but typically it’s two professionals who can handle that mortgage,” she said. “They’ve had a second child or have two children and they need parking. One may work from home and needs a study.”

So far her description sounded like my family. But then my pretend fantasy became a reality. As a renter in Toronto, I was priced out of this market.

“The buyers in this area are trading up, having 20 per cent down is common. They are not coming from a condo, they are coming from a smaller house,” said Ms. Mutch.

So what does a million bucks buy you in Roncesvalles?

“Not much,” she said.

I wanted to be a contender. I wanted a million dollar home. I wanted enclosed parking. Heck, owning a car would be nice too. But the real draw of Roncy for me would have to be the shops, cafes, and parks. It’s a good thing Roncesvalles is accessible by streetcar, because I hear parking is a bitch.

Kerry K. Taylor is a personal finance and consumer expert, the author of 397 Ways To Save Money and the lone blogger at Squawkfox.com. You can follow her on twitter at @squawkfox.

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Over 40% of first-time home buyers in Canada can’t afford a house without their parents’ help, report suggests

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image TORONTO — A Bank of Montreal report suggests first-time home buyers are increasingly turning to the “Bank of Mom and Dad.”

Move over Stephen Poloz, here’s the real reason mortgage rates are so low in Canada

Go figure — Canada’s overheated housing market is getting the biggest shot of juice from the efforts of a central bank thousands of miles away. Here’s how it works BMO’s 2015 Home Buying Report found that 42 per cent of first-time buyers told an online survey that they expected their parents or relatives to help pay for their first home.

That’s up 12 per cent from last year’s report.

The bank also said 40 per cent of the first-time buyers said they couldn’t afford a home without financial help from family.

The study found the first-timers were anticipating a downpayment of about $59,413 on average and had a budget of $312,700 for the purchase — slightly less than last year’s average price of $316,100.

Related Home buying frenzy defies Bank of Canada’s view of soft landing Low oil convinces people to stay put in B.C., boosting housing Canada’s mortgage wars hit new low as fixed rate dips to 1.49% The bank also found that 42 per cent of current home-owners surveyed said they were looking for family help with the purchase. Their average budget was $473,000 and their average downpayment was $123,214.

The BMO report is based on online interviews with a random sample of 2,007 people aged 18 years or more between Feb. 24 and March 5.

The polling industry’s professional body, the Marketing Research and Intelligence Association, says online surveys cannot be assigned a margin of error as they are not a random sample and therefore are not necessarily representative of the whole population.

Prices in Canada have been rising since 2009, resisting regulators’ efforts to cool the market by restricting credit. In Toronto and Vancouver, values have surged as much as 56 per cent in six years. Now as the European Central Bank’s bond buying helps drive down rates to near-record lows in Canada, the housing market is poised to ascend even higher.

Re/Max, the country’s largest residential real estate agency, raised its forecast for home price growth to 3 per cent from 2.5 per cent last week because transactions and values were so high in the first three months of this year. In March, housing sales rallied 4.1 per cent, the most in 10 months.

Toronto home sales increased 11 per cent to more than 8,000 transactions in March over the prior year, according to the Canadian Real Estate Association. Prices in the country’s most populous city jumped 10 per cent to about $601,500.

In Vancouver, Canada’s most expensive home market, sales soared 53 per cent and the average cost to buy a home rose 11 per cent to $870,000.

With files from Bloomberg LATEST PERSONAL FINANCE VIDEOS

WHere’s what’s really scary about high-ratio mortgages in Canada

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Canadians buying (overpriced) houses this spring with little money down, now face an additioimagenal burden with the recent announcement by CMHC – quickly followed by Genworth — that mortgage insurance will rise in price come June 1 of this year. Remember, this is the (bizarre) coverage that most homebuyers must pay for, which protects and indemnifies the lender in the event they (the homeowner) defaults.

Postmedia News Postmedia NewsSchulich School of Business professor Moshe A. Milevsky says homeowners with high ratio mortgages don’t realize the “risk pool” they have stepped into. Absurdly, this insurance stands in contrast to every other policy known to mankind, where the insurance premiums you pay are meant to protect you and not the payee. In contrast, with mortgage insurance you pay the premiums now when you buy the house and then in the event something horrible (financially) happens in your life, your banker won’t have to share in your misery.

Pity the high ratio mortgagor – a euphemism for buyers with very small down payments — who must now spend an additional 3.6% of the amount borrowed if they are only putting down 5% of the value of the house. And, the 3.6% insurance premium assumes a traditional form of down payment. For the non-traditional homebuyers, the premium rate is 3.85%. This, of course, is in addition to closing costs, land transfer taxes, moving expenses. Be prepared to spend.

But what really alarms me is what happens to these high ratio mortgage buyers and their spending after they have finally closed the deal and moved into their dream house. To be honest, I’m not sure they realize what a “risk pool” they have stepped into. Let’s look at the numbers.

The table below tells a scary tale. It is based on my analyses of Statistics Canada’s report on Survey of Household Spending. The data are somewhat stale – and worth monitoring very closely, if it were up to me — but based on anecdotal evidence the numbers are even worse today. Either way, here is what these sorts of numbers are saying very loud and clearly.

mortgage-table

Where does the money go? Look at the first column. The 3.7 million Canadian home owning households without a mortgage – lucky them – have a disposable income (after income taxes and transfers) of $57,000 per year. They spend approximately 15% of their disposable income on shelter. Obviously, they don’t have a mortgage, so they don’t have to make any mortgage payments. But they still have to spend money maintaining and sustaining the house. They ‘burnt’ the mortgage long ago, but the bills do keep coming. Again, they spend 15% on housing and approximately 18% on transportation, 13.4% on food and 7.5% on recreation. No surprises really, or anything very interesting quite yet. But, here is the good news. Households without any mortgage payments to make actually save 14.7% of their disposable income, which is actually higher than the national average. Indeed, perhaps this is the reason so many Canadians look forward to the day they can “burn” their mortgage documents (perhaps at age 75, at this rate.)

Now look at second column, which represents the entire group of 4.9 million Canadian home owning households with (any) mortgage debt. They actually happen to have a higher disposable income of $73,700 compared to those in the first column, perhaps because they are younger and/or still working. Interestingly, they don’t appear to spend any less percentage wise on transportation, food and recreation. Yes, they obviously spend much more on shelter, approximately 30% of disposable income because they do have a mortgage after all. But even those households with mortgages still manage to eke out a savings rate of 3.5% of disposable income. Not great, but positive and closer to the national average. (Math point to remember: X% of disposable income is less than X% of gross pre tax income.)

Now, if I didn’t know better than to be deceived by simple averages, I would (erroneously) conclude that Canadians would be OK. After all, even those with mortgage debt are still managing to sock away money for retirement and/or a rainy day. They are a prudent bunch.

But as we all know, you can drown in a pool with an average depth of a foot. Analogously, let’s take a close look at the Canadian families who live in the deep-end of the risk pool.

Now look at the third and final column in the table; the one I believe is the scary one. This summarizes the spending life of the 1.8 million Canadian households who have a mortgage liability ratio (MLR) larger than 20% of disposable income. Recall, this implies that they are spending at least 20% of their after-tax income to cover the mortgage (only). On a pre-tax basis this number is higher and this figure doesn’t include maintenance, property taxes, heating or utility bills and all the other things one needs to avoid freezing in the winter or melting in the summer. The 20% of disposable income (only) goes to keep the bank at bay.

Oddly enough or perhaps by force of habit, these 1.8 million households continue to spend a similar fraction of their disposable income – compared to their less leveraged counterparts — on food, recreation and transportation. They long for the house and need to furnish it as well as keeping up with the local Joneses.

Alas, with over 20% of disposable income going to the bank, what gives in the family budget? You guessed it, savings. Whether it be for retirement or even an emergency, there is no money left at the end of the month. They don’t save.

Well, actually, it’s worse.

These 1.8 million households are taking a (1.) highly leveraged bet on the continued appreciation of housing, and (2.) aren’t willing to reduce their discretionary consumption to account for the new risks on their balance sheets. Look carefully, they are actually saving -13% (dissaving 13 per cent) of their disposable income.

How exactly do you dissave 13% of anything? Well, by foolishly buying things on credit cards, perhaps refinancing their mortgage every few years and spending some home equity, or perhaps other non-traditional (i.e. off-balance sheet) methods of borrowing. Anecdotally, again, my understanding is that parents and family members are yet another creditor of the high ratio mortgagor. Their home is the nest egg.

Yes, “but Cassandra” I am quickly reminded by every bullish realtor and agent in town, “the pricey house is their big savings.” After all, the promoters assert with confidence, if housing continues its steady march to the clouds we will all retire rich. “Why bother with any other forms of saving?” they ask.

Well, if you work your way backwards, the amount by which housing prices would have to appreciate over the next 10 to 15 years to justify negative savings rates — and still leave a decent liquid nest egg for retirement – is staggering. Personally, I can’t get the math to work out even in the shallow (i.e. small mortgage) end of the risk pool, let alone the deep (i.e. big mortgage) end. And, worst case scenario, if real estate disappoints and/or interest rates swell, just when it comes time to renew your mortgage in three to five years, well, I guess these 1.8 million Canadian families will learn what it’s like to run their house like a hedge fund.

Moshe A. Milevsky is a professor at the Schulich School of Business at York University, and author of the recently published book: King William’s Tontine: Why the Retirement Annuity of the Future Should Resemble Its Past, Cambridge University Press (2015.)

Federal Budget 2015 holds off on new measures to cool housing

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Household debt reached record levels in the last quarter, according to Statistics Canada, but Ottawa says our appetite for credit, driven by home ownership, has simagetabilized.

It appears that Finance Minister Joe Oliver has no plans to impose further restrictions on borrowing, with the budget noting Ottawa has tightened rules on government-backed insured mortgages four times since 2008.

The federal government says the overheated housing market is now a Toronto and Vancouver problem with the rest of the country having already witnessed moderation in pricing.

“There has been an appropriate and desirable moderation in housing activity in most regional markets across Canada. Toronto and Vancouver, in contrast, have continued to experience periods of strong sales and price growth, with housing market strength in these cities supported by such factors as population growth and land scarcity,” according to the budget.

Related Here’s what’s really scary about high-ratio mortgages in Canada Forget gold, buy a Vancouver condo if you want to stash your wealth, says world’s top money manager The federal budget states housing has been an “important” contributor to Canada’s gross domestic product but Ottawa doesn’t seem to think consumers are overstretched and noted the interest cost of servicing debt is at an all-time low.

“Higher debt loads leave the household sector more vulnerable to income shocks or a sudden sharp increase in interest rates,” according to the document. “However, as households have accumulated debt in a very low interest rate environment, the cost of servicing that debt is at a record low.”

The government says Canadians have been taking advantage of “solid employment gains” and record low interests to invest in all kinds of housing, including buying first homes, moving into larger homes or renovating existing homes.

“The pace of household debt accumulation relative to disposable income increased between 2002 and the depths of the global recession in mid-2009, before slowing and then broadly stabilizing at an elevated level since 2012,” states the budget document.

Household to disposable income was 163.6 per cent in the latest quarter but was under 110 per cent in 2002 before consumer borrowing began to take off. LATEST PERSONAL FINANCE VIDEOS

Frenzy defies Bank of Canada’s view of soft landing

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At the central bank in Ottawa, officials are forecasting a soft landing for the housing markimageet. On the ground in Canada, brokers and homebuyers see prices that keep going up.

Move over Stephen Poloz, here’s the real reason mortgage rates are so low in Canada

Go figure — Canada’s overheated housing market is getting the biggest shot of juice from the efforts of a central bank thousands of miles away. Here’s how it works Re/Max, the country’s largest residential real estate agency, raised its forecast for home price growth to 3 per cent from 2.5 per cent on Friday because transactions and values were so high in the first three months of this year. In March, housing sales rallied 4.1 per cent, the most in 10 months.

“We’re not seeing any” signs of cooling, said John McKenzie, a real estate agent at Royal LePage in Sechelt, British Columbia. Government forecasters are “kind of like weathermen. Quite often they’re just wrong. Sometimes they’re going to tell you it’s pouring rain and you wake up and it’s a nice day.”

Prices in Canada have been rising since 2009, resisting regulators’ efforts to cool the market by restricting credit. In Toronto and Vancouver, values have surged as much as 56 per cent in six years. Now as the European Central Bank’s bond buying helps drive down rates to near-record lows in Canada, the housing market is poised to ascend even higher.

The Bank of Canada said in its quarterly monetary policy report Wednesday that it sees signs of moderation in the housing market, with starts and resale activity slowing since last fall. Residential investment as a share of gross domestic product is set to drop as Canadians spend less, Bank of Canada Governor Stephen Poloz said in the report.

“Despite localized risks, the most likely scenario as the economy gains strength remains a soft landing in the national housing market,” Poloz said. Related Low oil convinces people to stay put in B.C., boosting housing The B.C. housing market is on fire — and not just in Vancouver Canada’s mortgage wars hit new low as fixed rate dips to 1.49% Confidence Up

Gurinder Sandhu, executive vice president of Re/Max Ontario-Atlantic, detects no softness in housing.

“In Canada, we’re in a perfect storm,” Sandhu said. “Low interest rates are really driving the demand. Consumers are showing an incredible amount of confidence — more than we’ve seen in the past few years.”

For Re/Max, which has 19,000 agents throughout Canada, its revised forecast this month was a first for an agency that typically makes such changes in December. The company’s move was spurred by faster than expected gains in Toronto and Vancouver in the first quarter.

Re/Max boosted its prediction for price growth this year to 7 per cent from 4 per cent in Toronto, and to 6 per cent from 3 per cent in Vancouver. Sandhu said the flurry of activity in the two cities will push up national figures and spill over into surrounding regions.

Toronto, Vancouver

Toronto home sales increased 11 per cent to more than 8,000 transactions in March over the prior year, according to the Canadian Real Estate Association. Prices in the country’s most populous city jumped 10 per cent to about $601,500.

In Vancouver, Canada’s most expensive home market, sales soared 53 per cent and the average cost to buy a home rose 11 per cent to $870,000.

It’s cheaper than ever for a Canadian home buyer to finance a purchase. The central bank unexpectedly cut its overnight lending rate in January as the plunge in oil prices threatened the economy.

The bank’s move prompted the nation’s lenders to drop their prime rates, which control everything from variable mortgages to lines of credit, and also pushed down the five-year government bond yield to a record low of 0.58 per cent in February.

The yield erosion has since led lenders like Bank of Montreal and Toronto-Dominion to further slash promotional fixed-rate mortgages to as low as 2.74 per cent.

Negative Yields

Bond buying across the globe is also compressing bond yields, which banks use when pricing mortgage loans, in Canada. The European Central Bank’s negative bond yields have damped Canada’s mortgage bonds denominated in francs and euros.

Royal LePage’s McKenzie, who’s been an agent for about 15 years, said he’s been selling homes within days of offering them as buyers take advantage of the lower financing costs. A retiring couple he worked with a month ago listed their east Vancouver home on a Thursday for $699,000. Eighty couples attended an open house over the weekend and a dozen offers were submitted by Monday. The couple sold it for $89,000 over the listing price.

“Sales have been brisker,” said McKenzie, who sells about 100 homes a year. “There’s no fear in selling houses. They know they’ll get multiple offers.”

So far this year McKenzie has already sold 40 homes in what he expects to be his highest-grossing year yet.

Outside of big cities, there had been signs of a cooling market as the price of oil dropped 40 per cent since June, spurring companies to cut jobs. Housing transactions fell the most on record in December and January in Calgary, as prices were expected to follow.

Oil Hub

The market in the oil hub of Calgary is now rebounding after four months of declines. Sales rose 12.5 per cent in March and prices gained 1.9 per cent.

“Buyers are in a frenzy,” said Brent Celestine, an agent with Century 21 Atria Realty Inc. in Toronto. “Interest rates are so low. People are trying to get in on that.”

Bloomberg.com

No immediate action from Ottawa to cool Canada’s housing market, says Stephen Harper

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imageMISSISSAUGA, Ont. — Prime Minister Stephen Harper says the federal government is keeping a careful watch on borrowing and lending tied to the country’s hot housing market.

But Harper says Ottawa has no immediate plans to take action to cool it down, like it has in the past.

Responding to a question in Mississauga, Ont., he said debt-servicing costs are falling and default rates remain extremely low.

Harper made the remarks at a time when big banks and other lenders are cutting mortgage rates to kick off the spring real-estate season.

Related Spring mortgage market kicks off with a new low rate from Bank of Montreal — but you can do better That $1 million Toronto home just got even pricier They also come amid concerns Canadians have piled on too much debt and worries that housing markets in Toronto and Vancouver have become overheated.

Harper says he’s not “unconcerned” about the housing-market situation, but he believes Canada’s financial institutions remain very strong. LATEST PERSONAL FINANCE VIDEOS

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