Finance Minister Jim Flaherty announced new rules Tuesday aimed at preventing homebuyers from getting into financial difficulty when mortgage rates rise.
After consulting with major Canadian lenders, Flaherty outlined the latest weapons at Ottawa's disposal aimed at removing some of the speculative froth in the housing market.
Finance Minister Jim Flaherty has announced new rules aimed at preventing homebuyers from getting in over their heads with mortgage debt.Finance Minister Jim Flaherty has announced new rules aimed at preventing homebuyers from getting in over their heads with mortgage debt. (Fred Chartrand/Canadian Press)
"There is no evidence of a housing bubble, but we're taking prudent steps today to prevent one," he said at a news conference in Ottawa. "If some lenders aren't willing to act themselves, we will act."
Broadly speaking, the plan unveiled has three components.
First, Ottawa will require that all borrowers meet the standards for a five-year fixed-rate mortgage, even if they choose a variable mortgage with a lower rate or a shorter term.
"This will guard against higher rates in the future," Flaherty said.
Second, the rules would lower the maximum Canadians can withdraw when refinancing their mortgages to 90 per cent of the value of their home, from 95 per cent.
And finally, Ottawa will now require a minimum 20 per cent down payment to qualify for CMHC insurance for non-owner-occupied properties purchased as an investment.
The last rule is aimed at reining in would-be real estate speculators who own multiple properties beyond their primary residence.
"We want to discourage the tendency some people have to use a home as an ATM, or buy three or four condos on speculation," Flaherty said.
Minimum down payment unchanged
There had been speculation the Department of Finance might implement legislation raising the minimum down payment from five to 10 per cent of a home's value, or reduce the maximum amortization period from 35 years to 30 years.
Those measures were not part of Flaherty's announcement Tuesday, but all options are still on the table should circumstances change, Flaherty said.
The adjustments to the mortgage insurance guarantee framework, to be implemented as of April 19, 2010, are not likely to revolutionize the industry. Indeed, current policies at some large Canadian lenders are similar to the first peg of Flaherty's plan.
After Tuesday's announcement, the Bank of Montreal noted that it already requires its high-ratio borrowers to be able to qualify using the five-year rate. And all banks currently test all mortgage applicants on a three-year fixed-rate mortgage rule, Toronto-Dominion bank says.
People walk past new homes that are for sale in Oakville, Ont., in April. Finance Minister Jim Flaherty introduced new rules designed to rein in the real estate market Tuesday.People walk past new homes that are for sale in Oakville, Ont., in April. Finance Minister Jim Flaherty introduced new rules designed to rein in the real estate market Tuesday. (Nathan Denette/Canadian Press)
"While we do not believe that Canada faces a housing bubble, we fully support the minister's actions," Bank of Montreal said in a release. "Given the prospect of higher interest rates and the recent run-up in housing prices in some markets across Canada, the measures announced today are prudent."
"This is a little bit late in telling Canadians we need to be more cautious in taking out a mortgage," Royal Bank chief economist Patricia Croft said in reaction to Flaherty's announcement.
Though she stopped short of calling Canadian real estate in bubble territory already, she said the April 19 date for implementation is actually likely to cause more short-term stimulation of the market, as people scramble to get in under the deadline.
"If you wanted to buy a house, wouldn't you now do it before April?" Croft asked. "It's even more evidence that house prices are going to cool down later this year."
For its part, the Canadian Association of Accredited Mortgage Professionals says it supports the amendments, calling them preventative measures against possible future risk.
Read more: http://www.cbc.ca/politics/story/2010/02/16/mortgage-flaherty.html#ixzz0fjTBVjlb
www.vancouvermortgagefinder.ca
Tuesday, February 16, 2010
Monday, February 8, 2010
CREA forecasts record home sales in 2010
The Canadian Real Estate Association now says 2010 will be a record year for home sales.
The Ottawa-based group, which represents about 100 boards across the country, said sales this year will climb 13.3% from 2009. The market will also surpass the 2007 peak by 1.2%.
"Low interest rates are expected to boost housing demand in the first half of the year, resulting in strong annual sales growth in nearly all provinces in 2010, led by British Columbia and Ontario," said CREA in a release.
Part of the reason for the surge in activity in the first half of 2010 is being attributed to the harmonization sales tax that comes into effect in Ontario and British Columbia on July 1. Consumers are expected to try and beat that deadline.
However, by 2011, rising interest rates are forecast to put a dent in the housing market. CREA sales will drop by 7.1% in 2011.
"Although interest rates are expected to rise, they will still be low enough to keep affordability within reach for many homebuyers requiring mortgage financing, and support overall housing demand," said Dale Ripplinger, president of CREA.
Prices will rise by 5.4% in 2010, bringing the average price to $337,500. The national average price continues to be skewed by strong markets in B.C. and Ontario which has the two most expensive cities in the country to live in. By 2011, the national average price will drop by 1.5%.
"Improved financial market stability and recovering global economic growth mean that home sales activity in 2010 is unlikely to repeat the dive it experienced in late 2008 and early 2009," said Gregory Klump. chief economist at CREA. "A downward trend in national sales activity combined with an increase in listings will result in a more balanced market. Although builders are understandably more upbeat than they were during the depth of the recession, speculative building will likely continue to be held in check. As a result, while the real estate market will become more balanced, Canada will continue to avoid the massive realignment in housing supply and demand experienced in the U.S."
www.vancouvermortgagefinder.ca
The Ottawa-based group, which represents about 100 boards across the country, said sales this year will climb 13.3% from 2009. The market will also surpass the 2007 peak by 1.2%.
"Low interest rates are expected to boost housing demand in the first half of the year, resulting in strong annual sales growth in nearly all provinces in 2010, led by British Columbia and Ontario," said CREA in a release.
Part of the reason for the surge in activity in the first half of 2010 is being attributed to the harmonization sales tax that comes into effect in Ontario and British Columbia on July 1. Consumers are expected to try and beat that deadline.
However, by 2011, rising interest rates are forecast to put a dent in the housing market. CREA sales will drop by 7.1% in 2011.
"Although interest rates are expected to rise, they will still be low enough to keep affordability within reach for many homebuyers requiring mortgage financing, and support overall housing demand," said Dale Ripplinger, president of CREA.
Prices will rise by 5.4% in 2010, bringing the average price to $337,500. The national average price continues to be skewed by strong markets in B.C. and Ontario which has the two most expensive cities in the country to live in. By 2011, the national average price will drop by 1.5%.
"Improved financial market stability and recovering global economic growth mean that home sales activity in 2010 is unlikely to repeat the dive it experienced in late 2008 and early 2009," said Gregory Klump. chief economist at CREA. "A downward trend in national sales activity combined with an increase in listings will result in a more balanced market. Although builders are understandably more upbeat than they were during the depth of the recession, speculative building will likely continue to be held in check. As a result, while the real estate market will become more balanced, Canada will continue to avoid the massive realignment in housing supply and demand experienced in the U.S."
www.vancouvermortgagefinder.ca
Monday, February 1, 2010
Consumer debt loads are the new concern
The optimism that consumers felt heading into this year was short-lived, and has been overcome by nagging concerns over their debt loads.
The economy is recovering its footing, thanks to consumers who provided it with a shoulder to lean on by taking advantage of exceptionally low interest rates to buy homes and other big-ticket items.
But the tables are set to turn. Policy makers are hoping that new strength in the economy will give consumers the support they need to straighten out their finances, even as interest rates inevitably begin to rise.
It's an untested hypothesis. This is the first recession in which real credit, the amount of debt that people are taking on adjusted for inflation, has risen.
And growing anxiety about paying down debt suggests that the central bank's ability to fuel the economy with ultra-low rates could lose steam if consumers retract from their borrowing binge.
New figures that were released by the Bank of Canada on Friday show that the amount of consumer credit held by the country's chartered banks rose to $335.6-billion in December, up from $333.6-billion in November and from $291.7-billion in December of 2008.
The turn of a new year, coupled with a greater belief that interest rates will rise in the next six months, appears to have prompted more contemplation about debt levels.
And, as they evaluate their household finances, the majority of Canadians are worried.
Fifty-eight per cent of consumers are concerned about their debt loads, according to the January RBC Canadian consumer outlook index, which comes out today. It's the first time that that question has been added to the survey, but it's a fairly safe assumption that concern has risen.
“Canadians are clearly worried about their current level of debt,” said David McKay, the head of Canadian banking at Royal Bank of Canada.
“We know that the anxiety about a couple of other things has gone up,” added Marcia Moffat, who runs Royal Bank's mortgage business. “We saw people delaying major purchases, so they did some belt tightening. They're a little less positive about the Canadian economic outlook, and they're more concerned about jobs.”
Sixty-eight per cent of Canadians expect interest rates to rise in the next six months, up from 57 per cent in the prior month.
Higher rates will mean higher monthly payments on many debts, an inevitability that is spurring concern.
“We've been squeezing the consumer pretty hard as a means of offsetting the decline in external demand,” said Stewart Hall, an economist at HSBC Securities. While U.S. consumers are de-leveraging, Canadians continue to rack up debt. “We've ridden through this recession largely on the back of domestic consumer demand,” Mr. Hall noted.
To transition on to a sustainable economic growth path, demand from the private sector must bounce back, along with exports. “We need to see the consumer hand off some of the responsibility for growth,” Mr. Hall said.
With a little luck, the recovery will help boost disposable incomes, allowing debt-to-income levels, which are currently at an all-time high, to recover.
But some consumers are tapped out and won't be able to cope with rising rates. “Consumer bankruptcies have risen significantly over the past year, and they will continue to rise,” said Canadian Imperial Bank of Commerce chief economist Benjamin Tal. “Clearly, some people are in over their heads, and more will get into trouble when interest rates rise.”
The problem does not threaten to derail the recovery, but it will pose challenges, he suggested.
“We are stealing or borrowing activity from the future,” Mr. Tal said, especially in the housing market where many consumers have felt that if they didn't act now they'd miss the boat. “It means that borrowing and real estate activity will not be as strong in 2011, and that's the price we pay for today's activity.”
In evaluating the extent of the problem, Mr. Tal believes there has been too much focus on ballooning debt-to-income ratios, and too little focus on debt-to-asset ratios, which have remained relatively steady.
In fact, assets have been rising faster than liabilities since the second quarter of 2009, meaning that the net worth of individuals' is on the upswing. However, that's largely a result of surprising increases in stock markets and home prices, which gave consumer balance sheets a lift.
Matthew Le Roy
RBC Mortgage Specialist
www.vancouvermortgagefinder.ca
The economy is recovering its footing, thanks to consumers who provided it with a shoulder to lean on by taking advantage of exceptionally low interest rates to buy homes and other big-ticket items.
But the tables are set to turn. Policy makers are hoping that new strength in the economy will give consumers the support they need to straighten out their finances, even as interest rates inevitably begin to rise.
It's an untested hypothesis. This is the first recession in which real credit, the amount of debt that people are taking on adjusted for inflation, has risen.
And growing anxiety about paying down debt suggests that the central bank's ability to fuel the economy with ultra-low rates could lose steam if consumers retract from their borrowing binge.
New figures that were released by the Bank of Canada on Friday show that the amount of consumer credit held by the country's chartered banks rose to $335.6-billion in December, up from $333.6-billion in November and from $291.7-billion in December of 2008.
The turn of a new year, coupled with a greater belief that interest rates will rise in the next six months, appears to have prompted more contemplation about debt levels.
And, as they evaluate their household finances, the majority of Canadians are worried.
Fifty-eight per cent of consumers are concerned about their debt loads, according to the January RBC Canadian consumer outlook index, which comes out today. It's the first time that that question has been added to the survey, but it's a fairly safe assumption that concern has risen.
“Canadians are clearly worried about their current level of debt,” said David McKay, the head of Canadian banking at Royal Bank of Canada.
“We know that the anxiety about a couple of other things has gone up,” added Marcia Moffat, who runs Royal Bank's mortgage business. “We saw people delaying major purchases, so they did some belt tightening. They're a little less positive about the Canadian economic outlook, and they're more concerned about jobs.”
Sixty-eight per cent of Canadians expect interest rates to rise in the next six months, up from 57 per cent in the prior month.
Higher rates will mean higher monthly payments on many debts, an inevitability that is spurring concern.
“We've been squeezing the consumer pretty hard as a means of offsetting the decline in external demand,” said Stewart Hall, an economist at HSBC Securities. While U.S. consumers are de-leveraging, Canadians continue to rack up debt. “We've ridden through this recession largely on the back of domestic consumer demand,” Mr. Hall noted.
To transition on to a sustainable economic growth path, demand from the private sector must bounce back, along with exports. “We need to see the consumer hand off some of the responsibility for growth,” Mr. Hall said.
With a little luck, the recovery will help boost disposable incomes, allowing debt-to-income levels, which are currently at an all-time high, to recover.
But some consumers are tapped out and won't be able to cope with rising rates. “Consumer bankruptcies have risen significantly over the past year, and they will continue to rise,” said Canadian Imperial Bank of Commerce chief economist Benjamin Tal. “Clearly, some people are in over their heads, and more will get into trouble when interest rates rise.”
The problem does not threaten to derail the recovery, but it will pose challenges, he suggested.
“We are stealing or borrowing activity from the future,” Mr. Tal said, especially in the housing market where many consumers have felt that if they didn't act now they'd miss the boat. “It means that borrowing and real estate activity will not be as strong in 2011, and that's the price we pay for today's activity.”
In evaluating the extent of the problem, Mr. Tal believes there has been too much focus on ballooning debt-to-income ratios, and too little focus on debt-to-asset ratios, which have remained relatively steady.
In fact, assets have been rising faster than liabilities since the second quarter of 2009, meaning that the net worth of individuals' is on the upswing. However, that's largely a result of surprising increases in stock markets and home prices, which gave consumer balance sheets a lift.
Matthew Le Roy
RBC Mortgage Specialist
www.vancouvermortgagefinder.ca
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