NOVEMBER DATA CONFIRM CANADIAN HOUSING REBOUND

Statistics released today by the Canadian Real Estate Association (CREA) show that national home sales rose for the ninth consecutive month and now stands a full 20% above the six-year low reached in February 2019. While the chart below shows that monthly home sales are now well above their 10-year average, they remain 6%-to7% below the record pace posted in 2016 and 2017.
There was an almost even split between the number of local markets where activity rose and those where it declined. Higher sales across much of British Columbia and in the Greater Toronto Area (GTA) offset a decline in activity in Calgary.
Actual (not seasonally adjusted) activity was up 11.3% year-over-year in November. Transactions surpassed year-ago levels in almost all of Canada’s largest urban markets.

“Sales continue to improve in some regions and not so much in others,” said Jason Stephen, president of CREA. “The mortgage stress-test doesn’t help relieve the ongoing shortage of housing in markets where sales have improved, and it continues to hammer housing demand in markets with ample supply.”

According to Gregory Klump, CREA’s Chief Economist, “Home prices look set to continue rising in housing markets where sales are recovering amid an ongoing shortage of supply. By the same token, home prices will likely continue trending lower in places where there’s a significant overhang of supply, perpetuated in part by the B-20 mortgage stress-test that continues to sideline homebuyers there.” Weakness continues to be most evident in Alberta and Saskatchewan where the economy has been hard hit by lower commodity prices and delinquency rates have edged upward.

New Listings
The number of newly listed homes slid a further 2.7%, putting them among the lowest levels posted in the past decade. November’s decline was driven primarily by fewer new listings in the GTA.
Slightly higher sales and a drop in new listings further tightened the national sales-to-new listings ratio to 66.3%, which is well above the long-term average of 53.7%. If current trends continue, the balance between supply and demand makes further home price gains likely.

Market balance measures that are within one standard deviation of their long-term average are generally consistent with balanced market conditions. Based on a comparison of the sales-to-new listings ratio with the long-term average, just over half of all local markets were in balanced market territory in November. That list includes the GTA and Lower Mainland of British Columbia, but market balance there is tightening. By contrast, an oversupply of homes relative to demand across much of Alberta and Saskatchewan means sales negotiations remain tilted in favour of buyers.

Meanwhile, an ongoing shortage of supply of homes available for purchase across most of Ontario, Quebec and the Maritime provinces means sellers there hold the upper hand in sales negotiations. There were just 4.2 months of inventory on a national basis at the end of November 2019 – the lowest level recorded since the summer of 2007. This measure of market balance has been retreating further below its long-term average of 5.3 months. While still just within balanced market territory, its current reading suggests that sales negotiations are becoming increasingly tilted in favour of sellers.

National measures of market balance continue to mask significant and increasing regional variations. The number of months of inventory has swollen far beyond long-term averages in Prairie provinces and Newfoundland & Labrador, giving homebuyers ample choice in these regions. By contrast, the measure is running well below long-term averages in Ontario, Quebec and Maritime provinces, resulting in increased competition among buyers for listings and providing fertile ground for price gains. The measure is still within balanced market territory in the Lower Mainland of British Columbia but is becoming increasingly tilted in favour of sellers.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose 0.8%. Marking its sixth consecutive monthly gain, it now stands almost 4% above its low point reached last May. The MLS® HPI in November was up from the previous month in 14 of the 18 markets tracked by the index. (Table 1)
Home price trends have generally been stabilizing in the Prairies in recent months. While that remains the case in Calgary, Edmonton and Saskatoon, prices in Regina have again moved lower. By contrast, home price trends have clearly started to recover in the Lower Mainland of British Columbia. Meanwhile, prices continue to rebound in the Greater Golden Horseshoe (GGH) region while continuing to trend higher in housing markets to the east of it.
Comparing home prices to year-ago levels yields considerable variations across the country, with a mix of gains and declines in western Canada together with price gains in eastern Canada.
The actual (not seasonally adjusted) Aggregate Composite MLS® (HPI) was up 2.6% y-o-y in November 2019, the biggest year-over-year gain since March 2018.
Home prices in Greater Vancouver (-4.6%) and the Fraser Valley (-2.9%) remain below year-ago levels but declines are shrinking. Elsewhere in British Columbia, home prices logged y-o-y increases in the Okanagan Valley (+1.4%), Victoria (+1.5%) and elsewhere on Vancouver Island (+2.8%).
Calgary, Edmonton and Saskatoon posted price declines of around -2% y-o-y, while the gap widened to -5.5% y-o-y in Regina.
In Ontario, price growth has re-accelerated well ahead of overall consumer price inflation across most of the GGH. Meanwhile, price growth in recent years has continued uninterrupted in Ottawa, Montreal and Moncton.
All benchmark home categories tracked by the index accelerated further into positive territory on a y-o-y basis. Two-storey single-family home prices posted the biggest increase, rising 2.8% y-o-y. Price gains were almost as strong for apartment units (+2.6% y-o-y) and one-storey single-family homes (+2.5% y o y), while townhouse/row prices climbed a more modest 1.5% compared to November 2018.

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians

Need an Appraisal? 7 1/2 tips for Success

Do you need to get a current value of your property? Then you are going to need an appraisal.

Banks and other lending institutions want to know the “current” market value of your home before they consider loaning money on the property. An appraiser checks the general condition of your home and compares your home to other similar homes which have recently sold in order to define a comparable market value for your home.

Here are 7½ tips that can help you get top current market value.

Short version – Prepare your home as if it was going to be sold!!

Long version… If a picture is worth a thousand words, think what kind of story the pictures from your home are telling?

In the world of mortgages, lenders seldom set foot on the property before making a loan decision.

Instead, they rely on their trusted list of approved appraisers. All a lender usually gets is the appraiser’s pictures of your property and their comments about how your home was appraised.

Tip #1

Clean up. The appraiser is basing the value of your property on how good it looks. Before the appraisal, prepare your home as if you’re selling it. Clean and declutter every room, vacuum, and scrub. Do whatever you can to make your home as presentable as possible.

Tip #2  Pay attention to curb appeal. An appraisal is all about first impressions. And the very first one the appraiser gets is when they walk up to your property. Spend an hour or two making sure the outside of your house, townhouse or condo is warm and welcoming.

Tip #3

The appraiser must be able to see every room of the home, no exceptions. Refusal to allow an appraiser to see any room will be noted in the appraisal can be a game stopper. There are times when it is not appropriate for the appraiser to take pictures of certain things and appraisers and lenders understand this, but refusal to grant access could kill your deal.

Tip #4

Make a list of upgrades and features. It’s important that the appraiser is made aware of any updates you’ve made, especially those which are hidden, like new plumbing and electrical. If possible, give the appraiser this list. That way they have a reference as to what has been updated and how recent or professional that work was done.

Tip #5

If you need to spend to update, be prudent. Many people think “bathrooms and kitchens” are the answer for getting high prices on home value. They aren’t. First, consider that kitchen and bathroom remodels can be some of the priciest reno costs. For that reason, it may be more prudent to spend a bit of money, for just a bit of updating. Paint, new flooring, new light or plumbing fixtures don’t break the bank, but can provide a dramatic impact and improve your home’s value.

Tip #6

You know your neighbourhood better than your appraiser does. Find out what similar homes in your neighbourhood have sold for. Your property might look like one down the street, but if you believe the value of your property is worth more, let them know why.

Tip #7

Lock up your pets. I’m sure most appraisers like pets, but some may be put off by your cat rubbing against their leg or the dog barking or following them around.

Tip #7½

One last tip – don’t annoy the appraiser with questions and comments and follow them around. Instead, simply be prepared to answer any of their questions and, if you do have concerns or queries, wait until they’ve completed their viewing of the property, then ask.

Mortgages are complicated, but they don’t have to be… Engage a Dominion Lending Centres mortgage expert!

KELLY HUDSON

Dominion Lending Centres – Accredited Mortgage Professional
Kelly is part of DLC Canadian Mortgage Experts based in Richmond, BC.

BANK OF CANADA HOLDS STEADY AMID CONTINUED TRADE UNCERTAINTY

The Bank of Canada maintained its target for the overnight rate at 1.75% for the ninth consecutive policy announcement, keeping the key interest rate stable for all of 2019. Today’s decision was widely expected as members of the Governing Council have signalled that the Bank is satisfied with the performance of the Canadian economy.

The Bank of Canada is one of a shrinking number of central banks that has not eased interest rates this year. Roughly 40 central banks have cut interest rates, most notably the US Federal Reserve, which has cut rates three times this year.

The statement was undoubtedly less dovish (i.e., consistent with a rate cut) than in October, noting that there are signs that the global economy is stabilizing, though trade remains the most significant downside risk to the outlook. On inflation, the expectation is for a continued run around the target 2% rate, though gasoline prices will cause some headline volatility over the coming months. Finally, “Governing Council judges it appropriate to maintain the current level of the overnight rate.”

While the risks to the outlook for the BoC remain skewed toward a rate cut, it doesn’t look like policymakers are in any hurry to move at this point.

The BoC does remain concerned about the global backdrop and potential risks for the domestic economy. In recent days, stock markets have sold off sharply as President Trump opined that a US-China trade deal is not likely any time soon.

The White House has lately threatened a new round of tariffs on many countries, including Canada, and warned of a possible reinstatement of steel/aluminum tariffs on Brazil and Argentina. The United States threatened tariffs on US$2.4-billion of French imports in retaliation against a French digital services tax, raising concerns in Canada that Justin Trudeau’s minority government will also face backlash from Washington if it proceeds with a campaign promise to impose a similar levy. US businesses have complained that the Canadian tax proposal would violate the intentions of the new North American Free Trade Agreement — called the U.S. Mexico Canada Agreement or USMCA — which allows for digital levies but prohibits discriminatory tax treatment. The deal is currently awaiting ratification in the US, where Congressional Democrats have been demanding changes to labour and environmental provisions.

On the domestic front, the central bank believes that the underlying details of the as-expected slowing in Q3 GDP were decidedly more positive than the headline 1.3% growth rate suggested and highlighted the stronger than expected rise consumer spending, housing and business investment. The press release stated that “housing investment was also a source of strength, supported by population growth and low mortgage rates. The Bank continues to monitor the evolution of financial vulnerabilities related to the household sector.” Housing was robust in Q3, accompanied by a re-acceleration in mortgage credit. While the BoC seems comfortable with this evolution, it will be monitoring credit growth.

Labour markets have been robust, inflation has been locked right around the 2% target range, and wage growth has strengthened. While growth headwinds remain, the bank is balancing these risks against those associated with re-inflating household credit growth (mostly via recovery in housing markets) from levels that the BoC has argued are already worryingly high.

“Fiscal policy developments will also figure into the Bank’s updated outlook in January.” Tomorrow’s Throne Speech is vital for the Bank of Canada. Governor Poloz said in October that $5 billion in fiscal stimulus is roughly equivalent to a 25 basis point rate cut. It looks as though the BoC would prefer that fiscal rather than monetary policy do the heavy lifting to offset the headwinds from the global trade war.

Bottom Line: Governor Poloz appears to be satisfied with his stand-pat policy with only six months left in his term as Governor. Today’s statement was much more sanguine than the more cautious tone struck in October. The risks around the economic outlook remain skewed to the downside and, while the same can be said for policy rates, some anticipated fiscal stimulus will likely provide the Bank of Canada with some breathing room. Barring a negative shock to the economy, it looks like the BoC could be on hold for some time yet.

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

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HOW TO GET A 5% DOWN PAYMENT FOR A $500,000 PURCHASE

We have seen a return of the buyers’ market and many people are asking, how long will this last? While some renters without a down payment might be asking, how can o put a plan in place to own?

With the cost of living so high, and student debts coming out of school, many consumers question how they’re going to come up with a down payment for a home.

Here are some ways you can get it done.

Decide how much you can save and pick a plan that works for you:  a) A 36-month plan saving $700/month will get you $25,200 (you will need about $2,000 for closing costs if you qualify as a first-time homebuyer) b) A 24-month plan savings $600/month for $14,400

Get a gift from a family member

Borrow the down payment, or a portion (which may also help with credit building)

A combination of all of the above

For those of you that want to partner with government for down payment and profit of home ownership, a new government program can be a helpful tool provided it stays past the October election. https://www.cmhc-schl.gc.ca/en/nhs/shared-equity-mortgage-provider-fund

You might me reading this and thinking, ‘yeah right, that is not reality.’ Or for some people, you know it might just be exactly what will help them move forward.

Perhaps you have graduated from school and your parents don’t charge you rent. Imagine if you could put one of your paycheques every month aside and try living within those means and budgeting accordingly.

Or say you have a partner and one of you just started work in a specific trade and the other’s paycheque went towards the “home purchase plan.”

Also, if you are within the qualifications to buy, you will be earning a combined household income of $125,000-plus per year, so taking those funds right from your paycheque into your RRSP will have additional tax benefits too where you can use the refund for closing costs or amp up your down payment.

Here’s an example of how this worked for a lab technician and chef with a two-year old daughter.

They did a combination plan as they moved up to Canada from the U.S. two years ago, both got stable jobs and had no outside debt. They were paying $1700 a month rent. They used a $10,000 line of credit they took to put into investment to help establish Canadian credit. After getting the line of credit and placing it into a safe investment, they:

Set up an RRSP and placed $600 a month on the loan and $700 a month into their RRSP.

Now this family is used to having a cash outlay of $3,000 per month which will be the actual expectation they have for when they buy a home.

With this plan, they take a mortgage for a test drive, save money on taxes, establish a great credit score and worked away toward their goal.

Are there holes in the plan? Yes, home prices may go up, there was interest on the loan they paid and they may have to adjust or modify their plan. Their employment can change, however, this practice will only benefit them no matter what life brings their way and there is a sense of empowerment when you have a plan and can see how you can get there.

Do you or someone you care about want to know how they can be set up with a multifaceted plan to help them move forward with a goal of owning a home?

Every once in a while you get to help people out and make a real difference in their lives. Recently a couple was referred to me who wanted to renew their mortgage. The bank that they had been dealing with for over 20 years had offered them a 5 year fixed rate that was more than 1% higher than the going rate.

First I told them to accept the lender’s option for a 6 month open mortgage. While it had an interest rate twice as high as they usually pay, it’s open and we could switch them as soon as everything was done. I have had other lenders who automatically put people into a fixed rate 6 month mortgage if they did not hear back from the clients before the mortgage expired.

I was able to beat this rate without any difficulty, but I was wondering why they were offered such a high rate. On closer examination of their credit reports, I saw that in the three years since they had purchased their home, they had built up their credit card and line of credit debt up over $50,000. As a result, the debt ratios didn’t work with any lenders. Their lender knew this and decided to take advantage of the client and charge them a premium to renew.

What the bank was not counting on was a mortgage broker who doesn’t give up. Over the years, our brokerage has developed relationships with a variety of lenders. One of those lenders, a credit union, arranges RRSP loans for us. They were running a loan special with an interest rate of 4.95% for loans up to $50,000. I sent a copy of our application over to the credit union with my clients’ permission and they were able to consolidate $50,000 of the debt and lower the monthly payments by $500. In addition, they would be paying off all this debt in 5 years. Under the old 19% rate, it would take them 10-plus years to pay their credit cards.

Now I was able to arrange a loan and lower their payments by over $200 a month. As this took time to arrange the consolidation loan and then the mortgage switch approval, rates dropped again by another .10 basis points. I was able to get the mortgage rate lowered again saving the clients another $1080 over 60 months which paid for the higher interest rate they had for 2 months.
Now I have saved my clients $43,000 over the next 5 years. That was a good day. If you want to look at options for lowering your mortgage and credit debts be sure to speak to your local Dominion Lending Centres mortgage professional.

DAVID COOKE

Dominion Lending Centres – Accredited Mortgage Professional
David is part of DLC Jencor Mortgages in Calgary, AB.

 

4 WAYS TO MAKE THE MORTGAGE PROCESS SMOOTHER

Mortgages are complicated—we get it! But there are steps that you as a homebuyer can take to make the process a much smoother one (plus let you walk away with the sharpest rate!)

1. Use a Broker
This should be the first step you take when getting a mortgage! Enlisting a trusted broker to work with you can help you secure the sharpest rate and the right mortgage product too! This is one of the biggest (if not the biggest) purchase you will make in your lifetime. Working with a professional will make all the difference.

2. Budget, Budget, and Budget Some More
Budgets aren’t the most glamorous element of homebuying but they are a necessity. Why? Because often you will have overlooked costs that can make or break you getting into your home. A few things to consider:
• Property transfer taxes
• Legal fees
• Home inspection/appraisal fees
• Down payment (this is kind of a big one)
• Mortgage insurance
And the costs don’t stop once you own the home.

3. Understand the Importance of the Down-Payment
Many home-buyers focus on just simply putting money aside for the down payment. While this is crucial, there are other considerations.
• How big of a down payment can you make? You must meet the federally mandated minimum down payment: 5% for all mortgages up to $500,000, and 10% on any portion above $500,000 up to $999,999.99 (CMHC-insured mortgage loans are only available on properties valued under $1 million). But the size of the down payment will also reduce the interest you pay out over the life of your mortgage and reduce the size of the CMHC mortgage premium too.
• Take advantage of the Home Buyer’s Plan to withdraw up to $25,000 tax free from their Registered Retirement Savings Plan (RRSP). This can help to supplement your down payment as long as you understand the rules for paying it back.
• Leave plenty of time to transfer the funds from whichever source you are pulling them from. You will also need to leave adequate time for a certified or cashier’s cheque to be produced before the closing

4. Don’t Become Hyper Focused On the Rate
Yes, the rate is important, but don’t be hasty and jump into a mortgage purely based on the rate. Consider other areas such as the terms, the penalty to break, the amortization, and all other factors before signing on the dotted line. Your broker can help you to understand the ins and outs of a mortgage.

Considering these four things can help you be more prepared when beginning the mortgage process. Remember, a Dominion Lending Centres mortgage broker will help you and guide you through each of these things to ensure you are getting the best mortgage possible and with minimal stress too!

GEOFF LEE

Dominion Lending Centres – Accredited Mortgage Professional
Geoff is part of DLC GLM Mortgage Group based in Vancouver, BC.

CREDIT REPORTS: YOU’VE SCORED! BUT ARE YOU PLAYING THE GAME?

For most people, your personal credit score and how a credit score is calculated are complete mysteries. How can you be expected to play and be successful if you aren’t even told the rules of the game? There are things borrowers can do to improve their score so they can access better mortgage products and save thousands of dollars, or qualify for their wonderful home when they otherwise might have trouble. Let’s stick handle through just some of the key things you should know about managing your credit score.

Amount owed and utilization accounts for 30% of your score. There are a lot of people that end up with high balances on their credits cards and struggle to meet the payments each month. If they manage to pay off their credit cards without seeing a mortgage broker to consolidate their debts, often the immediate response is to close the accounts. A better response is to cut up the cards and delete the numbers from your computer and devices and keep the accounts open. You want any remaining outstanding balances to be less than 75% of your total combined credit available, and if they are less than 35%, even better, because this keeps your utilization of available credit low and increases your credit score. Types of credit and the number of different credit products accounts for 10% of the score, so this is another reason you want to keep those accounts open. Cell phone providers are now reporting to the agencies that publish credit scores as well.

In some parts of the world where credit products are not well established, a borrower’s credit is evaluated based solely on how they have managed payments on their cell phone bills. It’s important to pay your cell phone bills on time; we’re all busy, so setup automatic payments to ensure a payment is not missed. My last word of advice for today is to monitor your credit score by purchasing your own credit report each year for about $25 so you know your score and to ensure the report is accurate. This will help you stay within the boundaries of the game.

There is a lot more to managing a credit score than I can get into in this short blog. If you would like to know more, contact me or your local Dominion Lending mortgage broker. We can provide advice to help you manage your credit score and put you in a better position to qualify for a mortgage with better rates. Know the rules of the game, plan ahead for your home financing, and play SMART.

TODD SKENE

Dominion Lending Centres – Mortgage Professional
Todd Skene is the founder of DLC Home SMART Mortgage with DLC Pilot Mortgage Group based in Vancouver, BC.

RENT-TO-OWN EXPLAINED

In some markets, it can take a long time to sell a property. An option available to some sellers is the Rent-to-Own sales method.

If you have someone interested in purchasing your property but they can’t obtain a mortgage either because they don’t have a down payment saved or their credit score is too low, this can be way to purchase a home. Usually the agreements run for 2 – 3 years.

A sales agreement is signed which states what the tenant and future owners are going to pay as rent while they save up a down payment and /or improve their credit score. The agreement has to state how much of their monthly payment is going towards the down payment. They also have to be paying market rents. In addition, the agreement must state that if the deal is cancelled the purchasers will get their down payment funds returned to them.

The reason that this must be stated in the agreement is that the mortgage insurers like Genworth and CMHC stipulate these terms must be in the agreement before they will approve a mortgage.

What are the pros and cons of this type of an agreement? The pros are that the tenants will maintain the property and not abuse it as they want to purchase it. The seller gets steady income while the buyer is saving for the purchase. The con is that as the price is determined in advance – radical changes to the local housing market may mean that the purchaser will get a great deal at the end of the agreement or walk away if the market drops significantly.

If you are considering this option, consult with a Dominion Lending Centres mortgage professional before you sign an agreement. They can determine if it will be valid with the mortgage companies and insurers before you’ve spent a cent.

DAVID COOKE

Dominion Lending Centres – Accredited Mortgage Professional
David is part of DLC Jencor Mortgages in Calgary, AB.

Residential Market Commentary – The realities of rental

With high prices and tougher qualifying requirements home buyers continue to explore the viability of renting out part of their home as a way to boost income or subsidize mortgage costs.  It is not uncommon and it is growing in popularity with younger buyers.

A survey conducted by one of Canada’s big banks found that 26% of home owners are, or are planning to rent out space.  Of that group nearly one-third are renting out space in their primary residence.  Among millennials nearly half are, or intend to be, landlords.  Among those who are looking for a home right now, 54% of millennials says they would pick a property with a source of rental income, compared to just 25% of baby boomers.

But is it worth the trouble?  The answer to that depends on attitude and expectations.  The bank survey found that 80% of homeowners agree that renting out space in their home makes financial sense, but they value their time and privacy more.

Being a landlord is a 24/7 occupation.  It may be called “passive income”, but you have to be willing to respond to tenant concerns on short notice and you have to be prepared for unexpected costs and maintenance.  There can be financial stress.

Even those who have the temperament, though, need to give careful consideration to the financial benefits and legal responsibilities.  The survey found that nearly three-quarters of landlord believe the tax advantages are worth it, even if the rental is losing money.  This can be a misconception.  It is important to know what you can deduct and what your tax obligations will be.  Many fledgling landlords get a nasty surprise come tax time.

Using part of your home to generate income to help qualify for a mortgage can also be a tricky business.  Lenders have varying criteria for how much real, or potential, rental income can be used in the loan application.  By one common calculation, unknown as rental addback, a $1,000 a month suite in your home will net you just $195 a month in income on your mortgage application.