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‘White-hot’ Vancouver, Toronto housing markets could be dragged down by rest of Canada, report says

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A new report from Moody’s Analytics says Canada’s two priciest markets could eventually be dragged down by housing results in the rest of the country.

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The report released Friday notes Toronto house prices are up 10.3 per cent from a year ago while Vancouver prices are up 16.3 per cent in the same period. Meanwhile the Brookfield House Price index for the entire country is up just under 5 per cent while Statistics Canada’s New House Price Index is growing at just under 2 per cent.

Housing gains have been markedly slower in the other Canadian metro areas, particularly in the Prairie provinces, and growth has moderated further in recent months,” writes Alexander Lowy, an associate economist at Moody’s Analytics which is a division of Moody’s Corp.

The economist says two factors may bring the housing market’s “white-hot streak to a screeching halt” and predicts a softening of household demand over the coming years.

Moody’s Analytics says the bifurcation in the market could work against the overall Canadian housing market at some point.

“This split will make it difficult to manage the market in the event of adverse shocks, and a continued slowdown in smaller metro areas could eventually drag down the overall market,” says the report.

Lowy also predicts rising interest rates will take a bite out of the Canadian housing market. “Mortgage rates will almost certainly rise by the end of the year as the U.S. Federal Reserve continues its rate hikes, driving up longer-term government bond yields in the U.S. and Canada through 2016,” he writes, adding the expectations of higher rates may giving the market “artificial strength” as buyers and sellers rush to secure deals with attractive financing.

Eventually, all the activity that has been pushed forward could result in a quicker drop in demand than anticipated, if rates begin to climb in a dramatic way.

The economist thinks Canada’s central bank is eventually going to have no way to go but up, when it comes to its key overnight lending rate.

“The Bank of Canada’s low interest rate policies may help prop up house prices this year, but even Canadian policy rate tightening is inevitable. This could price many new borrowers out of the market and increase the risks for those faced with rolling over existing mortgage debt or attempting to draw equity out of their homes. The result will likely be a softening of household demand over the coming years,” said Lowy.

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The BC Minister of Finance has announced several changes to the Property Transfer Tax program, effective Wednesday, which include:

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Breaking News:

  • a property transfer tax exemption for Canadian citizens and permanent residents who purchase newly-built homes, condos and townhouses under $750,000.  Purchasers must live in the property for at least one year. This is a potential savings in closing costs of up to $13,000;
  • a one percent increase in property transfer tax to three percent for homes which are sold over the $2 million mark;
  • the first time home buyers exemption will remain in place for homes under $475,000;
  • buyers will need to start disclosing their country of residence in all property transactions;
  • the beneficial ownership of properties held by corporations will also be tracked.


More details to come.unnamed

Regulator says B.C. mortgage brokers should disclose commissions

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web-rb-cd-mortgage-brokers-B.C.’s financial services regulator is proposing that mortgage brokers in the province disclose their commissions, a move the agency says is necessary to protect consumers but that brokers across the country argue will undermine confidence in their industry.

The province’s Financial Institutions Commission issued an open letter on its website last month detailing a plan that would require mortgage brokers to tell clients how much money they stand to make on a deal.

Mortgage brokers are provincially regulated, meaning the proposal would only apply to those in B.C. But the industry is closely watching the issue given the likelihood that other provincial regulators will follow suit.

The Financial Services Commission of Ontario said in an e-mailed statement that it was aware of the discussion in B.C. and “takes an interest in developments of the mortgage-broker industry across Canada, especially when those developments involve consumer protection.”

Unlike independent financial advisers or real estate agents, mortgage brokers don’t typically charge their clients fees, instead collecting a commission from banks and mortgage lenders. While brokers aren’t usually tied to a specific financial institution, in practice many work with only a handful of lenders who reward their loyalty with bonuses based on the volume of business they generate.

Under the current rules, brokers must disclose to clients that they are being paid by a lender, but aren’t required to reveal exactly how much they make on a deal.

The regulator says it’s concerned that brokers might be tempted to steer clients toward lenders who pay the highest commissions and bonuses, rather than into the most suitable mortgage or the one with the lowest interest rate.

“Our concern is firstly that there is a lack of transparency in the way that brokers are compensated and that consumers don’t have any information about the potentially powerful influences on a broker’s advice to them,” the commission’s deputy superintendent Chris Carter said.

Brokers argue that disclosing commissions would only confuse their customers, making them think they’re being charged extra or paying higher mortgage rates than they would at a bank. They fear that being forced to show how much they get paid will drive consumers toward the major banks, where mortgage salespeople also often work on commission, but aren’t required to disclose their compensation to customers.

“It could end up hurting the brokerage industry because of the perception that you’re paying more when you’re dealing with a broker,” Kelowna mortgage broker Laurie Baird said. “It puts us at an unfair disadvantage against the reps from the banks.”

Commissions are fairly standard across the industry, ranging from roughly 80 to 110 basis points on a typical mortgage (there are 100 basis points in a percentage point.) That equates to $4,000 to $5,500 on a $500,000 mortgage.

But brokers say disclosing an accurate dollar figure for every client will be difficult as many don’t know exactly what their commissions will be at the time, since they might end up qualifying for a volume bonus later in the year once they’ve done enough deals with a lender.

“It’s really complicated because how are you going to be able to disclose the exact amount if six months from now maybe your volume went up and you’re going to get a little bit of a bonus?” asked Donna Telep, a mortgage adviser in Maple Ridge, B.C., east of Vancouver. “As long as the individual client isn’t paying the fee, then I don’t see the purpose.”

At least two trade groups representing brokers have sent written concerns to the Financial Institutions Commission. Brokers are also being encouraged to write their MLAs over the issue.

The issue hits at the core of a larger battle facing the fiercely competitive mortgage broker industry, in which some mortgage brokers sacrifice a portion of their commissions in order to offer the lowest possible interest rates, a practice known as “buying down” the rate.

Such brokers typically make up for the lower commissions through doing a higher volume of deals, sometimes into the hundreds of millions of dollars.

They have drawn the ire of many traditional brokers who argue that revealing their commissions will push clients toward discount brokers offering the lowest fees and rates, but whose mortgages may also come with costly restrictions, such as prepayment penalties for those who need to break a mortgage early.

“They are the Wal-Mart of the mortgage industry,” said Walid Hammami, a mortgage broker in Montreal. “They are racing to the bottom.”

Many brokers are mainly afraid of consumers finding out how much they get paid, says Ron Butler, who operates a large online discount brokerage and is one of the few who supports the idea of disclosing commissions to clients.

“It’s really simple. I operate on one-third the income of the average mortgage broker, so I don’t mind it being showed to people,” he said. “I think it will have next to no effect [on the industry], which gives you some good insight into the level of terror that many mortgage brokers feel about revealing their income to their clients.”

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