Dreyer Group Mortgage Brokers

604-688-6002

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

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

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

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

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

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

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

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

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

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

Copyright THE CANADIAN PRESS/Jonathan Hayward

Copyright – THE CANADIAN PRESS/Jonathan Hayward

MISSISSAUGA, 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

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

Spring mortgage market kicks off with a new low rate from Bank of Montreal — but you can do better

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

Original Story Link

THE CANADIAN PRESS/Sean Kilpatrick

Copyright – THE CANADIAN PRESS/Sean Kilpatrick


Call it March Madness for the mortgage market, as banks begin a full-court press to lure in homebuyers as Canada heads into another vibrant spring for the country’s hottest housing spots.

That $1 million Toronto home just got even pricier

Detached homes in Toronto have have continued their upward price trend halfway through March, according to the Toronto Real Estate Board On Tuesday, the Bank of Montreal took an early lead, beating the competition with the lowest rate on a fixed five-year mortgage — ever.

“We call it their March miracle. They’ve done this for three consecutive years,” says Penelope Graham, editor of ratesupermarket.ca. “They are the first big bank [to lower] as soon as the March buying season starts to heat up.”

Bank of Montreal said early Tuesday it would lower the rate on the five-year fixed-rate mortgage – the most popular term in the industry – from 2.99% to 2.79%.

The season is certainly warming up in Canada’s largest city, with the Toronto Real Estate Board reporting preliminary March numbers showing that detached homes in the city were selling for almost $1.1 million on average over the first two weeks of the year, a 21.3% price jump from a year ago.

But Canada’s housing market has become a fierce competition, and BMO’s five-year deal is already drawing poor-sported heckles from industry watchers who point out that the posted rate is no lower than the actual rates banks have been offering their customers for weeks — and it is only available with particular restrictions.

Related Bank of Montreal cuts special five-year fixed-rate mortgage to 2.79%, the lowest among big banks That mortgage on your back? Relax. Here’s why Why you should care about the banks’ posted rates on mortgages Like previous March offers, BMO will only let consumers prepay up to 10% of the mortgage in a lump-sum payment every year, compared with the industry norm of 20%. Additionally, consumers cannot refinance the product and are stuck with BMO for the length of the five-year term of the mortgage. Even if you sell your house, you will have to transfer the mortgage to your next one.

“It’s the Hotel California of Canadian mortgages: You can check out but never leave,” said Vince Gaetano, a principal at monstermortgage.ca. “There are just better products out there that are more flexible.” The lump-sum issue is particularly confining because bigger lump payments reduce the penalty for breaking the loan if a borrower ever wants to. “The BMO product is a set of handcuffs,” said Mr. Gaetano.

Other critics charge the BMO product is not all that special, with most banks able to go as low as 2.74% on a discretionary basis. Rob McLister, founder of ratespy.com, said he had someone tell him they received a rate as low as 2.64% on a fixed five-year mortgage this week from a major bank.

It’s the Hotel California of Canadian mortgages: You can check out but never leave But BMO is not even the first bank out in the spring discount game. Before Tuesday, the Canadian Imperial Bank of Commerce had already posted a four-year fixed product offering a teaser rate of 1.99% for the first nine months. The remainder of the term is calculated at 2.83% – equating to a blended rate of 2.69% for four years.

The pitch from CIBC is that, on a $275,000 mortgage, your payment is reduced by $115 per month for nine months. Teaser rates were popular in the United States before the housing market crashed; then, when consumers couldn’t handle the higher rate once it kicked in, the system fell apart.

The difference in Canada is that consumers still must qualify based on their ability to pay their loan on the higher five-year qualifying rate, not based on the teaser rate as was the case in the United States.

Rate has become everything in the Canadian marketplace, according to Paul Mims, a retired mortgage executive who used to work for one of the Big Six banks. “It’s much more plain vanilla now,” he said, referring to his time when there were more variables.

“But the spring market is still the same. We used to work on our campaigns in January and February so we would be ready to go once the spring came. It’s all about gaining market share.” LATEST PERSONAL FINANCE VIDEOS

Financial Post Year in Review: Young homebuyers face tough financial choices

Financial makeover for the holidays

Buying a home with a pal?

Spending Zombies!

Canada home prices keep rising despite slowdown in Prairies

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

imageHousing sales across the country continued to raise along with prices despite a slowdown in parts of western Canada, the Canadian Real Estate Association said Friday

The average price of a home sold across the country rose to $431,812 in February, a 6.3% increase from a year ago, the Ottawa-based group, which represents more than 100 real estate boards, said.

“A number of buyers across the Prairies stayed on the sidelines in February,” said Beth Crosbie, CREA’s president, in a statement. “That’s likely to remain an important part of the national housing story until the outlook for oil prices starts improving. Meanwhile, home sales in British Columbia and much of Ontario are improving.”

Related History shows Calgary’s housing market can survive oil price collapse Why Finance Minister Joe Oliver isn’t intervening in Canada’s housing market Spring comes early to hot housing markets in Toronto, Vancouver, realtors say Nationally, home sales were up 1% in February from January and 2.7% from a year ago. The number of newly-listed homes climbed 2.5% from January to February which CREA said leaves the market in “balanced” territory.

The board said sales increases were led by boards in Greater Vancouver, the Okanagan region, and Greater Toronto. which helped offset declines elsewhere. A majority of local markets posted weaker sales in February compared to January.

Compared to 10-year average for February, sales were 5% below the average.

“Sales came in below the 10-year average for the month of February in two-thirds of all local markets,” said Gregory Klump, chief economist with CREA, in a statement. “That said, the opposite was true in a few large urban markets in British Columbia and Ontario despite a shortage of listings there, which is fuelling prices higher.”

twitter.com/dustywallet LATEST PERSONAL FINANCE VIDEOS

Get ready for a new round of speculation of a Canadian housing crash

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

The Canadian housing market’s continued strength was on display again Friday, but news that prices are rising on a national level is sure to drive a new round of crash speculation.

The Canadian Real Estimageate Association said prices were up 6.3% nationally from a year ago to a record $431,812 in February. Even using the Multiple Listing Service home price index, which is supposed to smooth out extremes, prices were up 5% from a year ago.

Rising home values tend to set off alarm bells among those calling for a correction — count the International Monetary Fund as a backer of that theory. The IMF said this week prices were up 60% during the past 15 years, on an inflation-adjusted basis, and the group is sticking with a call that prices could correct anywhere from 7% to 20%.

But Gregory Klump, chief economist with CREA, said the average national price is not a very good barometer for what is happening in the market because the growth in sales in Toronto and Vancouver tends to skew the market.

“All it takes is a pullback in sales activity [in those two] markets, not price, and that will affect the national average price,” Mr. Klump said. CREA noted that once you remove Greater Vancouver and Greater Toronto, the average national sales price in February was $326,910, an increase of only 1.5% on a year-over-year basis.

Factoring in the impact of declining oil prices, CREA updated its forecast on Friday, and now says sales are going to come down 1.1% in 2015 while prices rising 2%. By next year, Canadians can only look forward to another 2% price increase.

The pullback in housing has essentially already happened in some markets or is in the process of happening, with the exception of Toronto and Vancouver.

The Teranet-National Bank national composite index said prices were up nationally to record levels in February, but this was due to three cities. Hamilton, no doubt benefiting from its proximity to the Toronto, is also seeing an upswing in prices.

“Prices have corrected lately in many regions, the result being that prices have declined to their level of April 2012 (almost three years ago) in Halifax, Ottawa-Gatineau and Montreal, and of December 2012 in Quebec City,” said Marc Pinsonneault, an economist with National Bank.

Related Canada home prices keep rising despite slowdown in Prairies Canada household debt ratio hits new record of 163.3% Developers say foreign investors still a small segment of condo market Mr. Klump said that if you use the IMF’s methodology — the group merged CREA numbers with Teranet results — you do find prices are up about 60% since 2000, but the gains have been relatively modest since 2009.

“It’s disingenuous to say we are rising the same way now as we were before the [2008] recession,” said the economist.

None of this will silence the voices loudly predicting a correction. The most outrageous call in a while came in January from Deutsche Bank, which said the Canadian housing market was in serious trouble and almost 63% overvalued. So much for the past decade and a half of gains.

The housing correction call makes for great headlines and books — this month we were introduced to a new publication from Hilliard MacBeth called When the Bubble Bursts: Surviving the Canadian Real Estate Crash. The Edmonton-based portfolio manager is predicting a 50% decline in prices from current levels.

Mr. MacBeth says incomes have not kept pace with home price gains and that fuelled debt, which reached a record level in the fourth quarter of 2014. Household debt is now 163.3% of disposable income.

“All we need is for people to lose or fear they might lose income,” says Mr. MacBeth, adding the cascading effect would crumple the whole market. “We are at a very narrow tightrope act between income and debt, all it takes is a little shove for us to fall off the tightrope.”

The problem is he’s hardly the first person to make the call. And none of them has been right, while the people calling for a soft landing look increasingly accurate in their forecast. LATEST PERSONAL FINANCE VIDEOS

Financial Post Year in Review: Young homebuyers face tough financial choices

Financial makeover for the holidays

Buying a home with a pal?

Spending Zombies!

Spring comes early to hot housing markets in Toronto, Vancouver, realtors say

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

TORONTO — Rock-bottom interest rates, a scarcity of supply and growing demand from millennials and wealthy immigrants have fuelled a strong start to the spring real estate season in Toronto and Vancouver.

“Spring has come early for both Toronto and Vancouver,” said Sal Guatieri, a senior economist at BMO Capital Markets.

imageBoth cities experienced growth in sales volumes and prices during the first two months of the year, Guatieri said.

“I would expect the spring market to be quite hot in both cities — but that will be the exception across the country, not the norm.”

Related Calgary housing starts plunge by 40% in February as construction activity slows Point Grey mansion gets $51.8M: How Vancouver’s most exclusive real estate is drawing Chinese buyers The real cost of a $1 million home: Toronto buyers resort to sub-prime loans as prices soar In Toronto, February home sales grew by 11% from a year ago while prices jumped nearly 8%, according to statistics from the Toronto Real Estate Board. That’s despite the fact that it was one of the coldest Februaries on record for the city.

“I’ve always said that our climate naturally has a natural cooling effect on our real estate market,” said Claude Boiron, a Toronto-based broker with Royal LePage Terrequity Realty.

“You would think this year, with the extreme cold, that there would have been an extreme cooling, but that really didn’t happen. The amount of demand just continues to increase.”

The number of active listings — which indicates the supply of homes for sale — at the end February dropped by 8.7% from a year ago, leading to heightened competition between buyers.

In Vancouver, home sales were up 21% in February compared to a year ago, while prices rose by 6.4%. The average price of a detached home — an increasingly rare commodity in space-constricted urban centres — tipped over the $1 million mark in both cities this year.

Meanwhile, the spring outlook for other markets across the country is less rosy. Alberta and Newfoundland are likely to see their real estate markets continue to soften due to the impact of lower oil prices on their economies, Guatieri said.

“We do think oil prices will steady later this year, but the next few months could be a bit rough for the housing markets in those regions,” Guatieri said.

He noted that “even high-flying Saskatchewan has lost a lot of steam recently,” with home prices in Regina and Saskatoon, which had been rising rapidly, beginning to fall.

Real estate markets in Quebec and Atlantic Canada, which have cooled considerably, are expected to be remain relatively stable, Guatieri said.

“Those markets have been cool for some time now. Demand has been weak … Listings have shot higher. Prices are either very steady or, in many cases, falling modestly. I don’t see signs of a turnaround.”

But as immigrants continue to flock to Toronto and Vancouver and millennials enter their prime homebuying years, demand for housing will remain strong, Guatieri said. Toronto and Vancouver’s real estate markets will only start to cool once interest rates begin to rise, Guatieri said.

Despite the flood of buyers into the Toronto and Vancouver markets, mortgage expert Rob McLister says the banks have not been as aggressive in trying to woo customers with mortgage rate discounts as in previous years.

“When it comes to mortgage rate promotions, it’s been whisper quiet compared to the last few Februaries and Marches,” said McLister, who is the founder of RateSpy.com.

In addition to trying to maintain their profit margins, McLister says the banks are wary of drawing the ire of policy-makers, “many of whom don’t want flashy rate wars to further stoke demand in Canada’s overheated housing regions.”

The real cost of a $1 million home: Toronto buyers resort to sub-prime loans as prices soar

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

Just as in Vancouver, Toronto buyers are now scrambling to come up with the 20% downpayment or $200,000 on a $1 million home, if they want to borrow from a major bank. Twitter Google+ LinkedIn Email Typo? More Vancouver has already passed this high water mark, but now it’s Toronto’s turn to experience the $1 million home as the new norm – a property that comes with so much debt even the federal government seems scared of it.

From a shotgun shack to a waterfront estate: What $1-million gets you in cities across Canada

New statistics from the Toronto Real Estate Board released Wednesday show the average price of a detached home in the city reached $1,040,018 in February, the first time prices have crossed over the seven-figure threshold in any housing category.

Those buyers face a three-year-old rule that Ottawa imposed to cool the market, which bans any sort of government backing on homes worth more than $1 million.

As prices rise, some wonder whether insurers like Canada Mortgage and Housing Corp., the Crown corporation that backs bank loans, may have to revisit that threshold.

“Will it encourage insurers to benchmark or index their maximum home price?” asks Rob McLister, the founder of ratespy.com. “Now, a $1 million is an average house so you are basically saying [the government] is not going to insure an average house.”

Mr. McLister says once you get into $1 million plus, your choices of who you can borrow from change dramatically.

“A lot of people think ‘I’ve got a $1 million mortgage. I’m the man, give me the best rate.’ But that’s not necessarily the case,” he says.

In fact, those people are paying even higher rates than those from the banks because their loans have no government backing. If they can’t come up with the minimum downpayment of 20% required by law to borrow from a major bank, they must seek a loan in the subprime market.

Just as in Vancouver, Toronto buyers are now scrambling to come up with the 20% downpayment or $200,000 on a $1 million home, if they want to borrow from a major bank. And, just as happened on the West Coast, Toronto buyers are turning to sub-prime lenders to get them over the hump, facing interest rates of close to 13%.

Related Toronto home sales climb 11% as average for detached home tops $1 million for first time Pension funds swoop in on downtown Toronto condo towers as rental market heats up Toronto’s rental market reborn as housing prices surge out of reach for many

Yana Papanyan, vice-president of credit and underwriting at First Swiss Mortgage Corp., which is a major player when it come to helping this subprime segment of the market, says in a typical situation, a client might buy a property worth $1 million but only have $100,000 downpayment. First Swiss Mortgage will provide the other $100,000 under a second mortgage starting at 12.99%.

“Clients have to top up to 20% to get a bank to approve. We are filling that gap between what the client has as a downpayment and what the bank will accept,” said Ms. Papanyan. “About 80% of [First Swiss’ mortgages] in Vancouver are high-priced properties.”

First Swiss is not regulated by the federal government; that interest rate is considered competitive based on risk factors including the fact it is a second mortgage behind the bank’s debt.

Why was $1 million chosen anyway? One positive for these people is they do not end up paying mortgage default insurance, which can be as much as 3.15% of the value of a mortgage, based on current CMHC guidelines.

Benjamin Tal, deputy chief economist with CIBC, says rising prices and the $1 million government threshold is sending more consumers into the subprime market to borrow money. He estimates alternative lenders, who are major beneficiaries of that subprime market, now underwrite 2.2% of all mortgage loans, with the market having grown by 25% over the past year.

“When you say $1 million, people think ‘that’s extremely high expensive properties.’ They are not. This [restriction on loans for homes worth $1 million or more] is leading to less regulated entities entering the market,” said Mr. Tal, adding his data for Ontario shows that people are borrowing just to get the downpayment.

Mr. Tal also wonders whether Ottawa is going to have revisit the rules on whether it is willing to insure homes worth than $1 million.

“It’s a legitimate question. Why was $1 million chosen anyway?,” said Mr. Tal. “This is probably not consistent with the spirit of what they want to do, because the spirit of CMHC is to make housing affordable for young people.”image


SEO Powered By SEOPressor