Posts Tagged ‘Mortgages’

Market Commentary

November 4th, 2015 No comments

Hand writing Trends for 2015 with red marker conceptThe latest quarterly report from Canada Mortgage and Housing Corporation has some market watchers seeing red. But the agency points out its market assessment is an early warning signal and not a sign of a housing bubble that is about to burst.

The report indicates there are signs of over-valuation in 11 of Canada’s 15 major markets. Toronto, Winnipeg, Saskatoon and Regina all come in as “code red” for strong indications of problematic conditions.

Among the factors CMHC monitors are price acceleration, job and income growth, and overbuilding. The agency says it wants to promote stability by advising buyers, lenders and builders when a market is out of sync with economic fundamentals.

Montreal showed a moderate risk of over-valuation due low growth in first time buyers, weak income growth and a glut of unsold condos.
Vancouver – by far Canada’s priciest market – along with Calgary and Edmonton came in with low risk factors. Changes in those markets are in line with the local economies.

From: First National Financial LP

Liberal Government – How will their policies affect interest rates?

October 21st, 2015 No comments

LiberalGood evening,

Charmaine’s comment:   The prediction is that if there is going to be growth in the economy due to the Liberal Infrastructure program, this could lead to an increase in mortgage interest rates sooner than previously expected.



  • The federal Liberal Party, led by Justin Trudeau, appears likely to have taken 184 seats (54% of the newly expanded house) in last night’s election, a strong gain from the 36 seats (12%) held pre-election; handily passing the 170 seat threshold required for a majority government.
  • In their election platform, the Liberal party promised a revamping of the tax system and increased infrastructure spending, supported by deficits. Highlights include a new Canada Child Benefit, tax reductions targeted at middle income earners, and the creation of a new tax bracket for those earning more than $200K per year.
  • While it is difficult to assess potential impacts with any certainty at this early stage, the Liberal infrastructure program could boost annual growth in 2016 and 2017 by up to 0.1 and 0.3 percentage points, respectively.
  • Markets were noisy overnight, but the Canadian dollar has since recovered relative to yesterday’s close. Over the longer term, there is the potential for upward pressure on longer term yields resulting from increased deficit borrowing, but any impact is likely to be quite small given Canada’s favourable debt position relative to other countries, and the relatively small size of the additional borrowing.

From: Observation – TD Economics Oct 20th, 2015

The Bank of Canada has a WARNING for condo investors

February 6th, 2012 Comments off

Some lenders have increased the downpayment required for condo apartments, the usual downpayment is 5%, some lenders have increased this to 10%. The Bank of Canada has a warning for condo investors – the boom times may be over……..

In its December economic review, the central bank said that “certain areas” of the housing market could see prices fall as the economy weakens.

“Certain areas of the national housing market may be more vulnerable to price declines, particularly the multiple-unit segment of the market, which is showing signs of disequilibrium,” the bank warned. “The supply of  completed but unoccupied condominiums is elevated, which suggests a heightened  risk of a correction in this market.”

The Toronto  market has been of particular concern to market watchers, with prices  continuing to rise at the same time as a record number of new units are set to  flood the market.

It’s also unclear who is buying the units – those in the industry often cite foreign demand, saying that investors from afar are racing to snap up units  because the city is seen as a safe place to park money.

But there are no actual statistics. Canadadoesn’t track foreign  investment in its real estate market, leaving anyone with an anecdote licence  to talk up the market.

While there has been a flurry of construction in the GTA, where most of the  country’s condos are built, there are signs that the market is slowing. Data  released Thursday by Canada Mortgage and Housing showed the number of  multiple-unit housing starts dropped by a surprising 23 per cent in November.

Urbanation, which tracks Toronto  condo sales, said that 20,964 new condo units were sold in the first nine  months of the year, putting the city on track for a record year regardless of  any recent slowdown.

The average resale unit, meanwhile, sold for $365,161 in November,  according to the Toronto Real Estate Board, 8 per cent higher than they were  last year.

National Bank Financial analyst Stefane Marion said that he disagrees with  the idea of oversupply in the city. He said the amount of inventory currently  on hand would take 19.3 months to sell, below the historical average of 26  months and well below the four-year mark set in 1990, 2007 and 2010.

While it may be true that the residential market in Canada is vulnerable to  price declines in the advent of an economic slowdown, the source of the problem  is more likely to come from a credit-crunch induced global recession, not the
Toronto new condo market,” he said.

Those in the industry don’t expect to see things slow down much in the next year.

“As a result of delayed condo launches in 2011, and due to the number  of new sites rumoured and under development in the GTA, we are expecting a busy  2012 in terms of new condo launches,” said Matthew Slutsky, president of BuzzBuzzHome. “We are  expecting to see some epic and mind-blowing new condominium buildings and sites  coming to market in 2012, specifically centred aroundToronto’sYonge Street and the 905 region.”


Steve Ladurantaye

Globe and Mail Update
Posted on Thursday, December 8, 2011 2:54PM EST

Connect the Housing Bubble Dots: There could be Trouble on CMHC’s horizon

February 2nd, 2012 Comments off

Ted Rechtshaffen | Columnist profile | E-mail

Globe and Mail Update

Published Monday, Jan. 23, 2012 6:00AM EST

A few months ago I heard leading Canadian investor Eric Sprott speak, and he said a very basic thing that struck a chord. He said that you should not be afraid to connect the dots. The dots are usually in front of you, but people don’t often look beyond the single dot.

Today I am going to show six dots that we can all see. When we connect them, the conclusion is that the Canadian Mortgage and Housing Corp. (CMHC) has a realistic chance of putting the Canadian taxpayer at risk – unless meaningful changes are made.

The key piece of background is that right now, a young couple can put down $20,000 to buy a $400,000 house, or five per cent of the purchase price. Their mortgage will be insured by CMHC (the Canadian government, also known as you and I) in exchange for a fee paid by the young couple.

If that $400,000 house drops in value by 20 per cent, for example, which has happened before in Canada, it will be worth $320,000. But the couple will owe $380,000. Then the odds of them walking away from their house or defaulting on their mortgage become meaningful. Given that this young couple might be in the same position as 50,000 other young couples (about 3 per cent of the Canadian population) at roughly the same time, the odds of a surge in mortgage defaults is very real in Canada.

Here are the dots or facts that we can all see:

Dot #1: “The greatest risk to the domestic economy is household debt,” Bank of Canada Governor Mark Carney said in an interview with the CBC last week, again sounding the alarm bell on excess borrowing.

Dot #2: The ratio of credit market debt to personal disposable income rose to a record high of 150.8 per cent in the third quarter of 2011, Statistics Canada said last week, the third-straight quarter the figure has gone up.

Dot #3: Last week, Bank of Montreal offered a five-year mortgage rate of 2.99 per cent. The lowest rate offered in history. Yes, this rate is available to those interested in putting down 5 per cent.

Dot #4: Fannie Mae and Freddie Mac, two U.S. organizations started in 1968 as a government sponsored enterprise (although they became privately owned and operated by shareholders) – have a mandate to help Americans to become homeowners by increasing liquidity for housing lending, and where appropriate, taking on risk. These two organizations were bailed out by the U.S. government in 2008 after the housing market deflated and it is estimated that their bailout will eventually cost taxpayers as much as $124-billion (U.S.) through 2014. When the housing bubble burst in the U.S., the value of many houses fell by 50 per cent.

Dot #5: In November, the Economist magazine said that Canada is among nine countries in the world where house prices are overvalued by 25 per cent or more. It went on to say that Canada is one of only three countries where “housing looks more overvalued than it was in America at the peak of its bubble.”

Dot #6: CMHC is Canada’s national housing agency. Established as a government-owned corporation in 1946 to address Canada’s post-war housing shortage, the agency has grown into a major national institution. CMHC backed loans of $541-billion (Canadian) as of Sept. 30, 2011. At that time, the total equity of CMHC was $11.5-billion. This is 2.1 per cent in equity against its overall loan exposure. To put the $541-billion in perspective: If we go back to those imaginary 50,000 couples that bought a $400,000 house and put down $20,000, that represents $19-billion of mortgages.

Back in 2007, Fannie Mae backed up $2.7-trillion (U.S.) of mortgage-backed securities with $40-billion of capital, or 1.5-per-cent equity against its overall exposure. At that time Fannie Mae stock was trading at $50 a share. Today it is 19 cents.

Just because these dots or facts are out there doesn’t mean that housing prices in Canada will fall 25 per cent or that CMHC will face any major financial problems in the years ahead. However, by connecting the dots, we can see a very plausible scenario that already unfolded with Fannie Mae and Freddie Mac that cost U.S. taxpayers an estimated $124-billion. If we had a similar scenario – and CMHC is now roughly one-tenth the size of the combined Fannie Mae and Freddie Mac – it is plausible that in a major real estate downturn, Canadian taxpayers would be on the hook for several billion dollars.

The biggest risk is likely with mortgage holders who only put 5 per cent to 10 per cent of equity down when buying a property. The reason I say this is that if house prices drop by over 10 per cent, everyone in this group will have negative equity in their homes. According to CMHC, 9 per cent of their loan book (or $49-billion) is connected to mortgages with under 10-per-cent equity based on current home prices. Remember all of CMHCs equity value is $11.5-billion (Canadian). Another 18 per cent of their loans are connected to mortgages with between 10-per-cent and 20-per-cent equity based on current home prices. This is another $108-billion of loans.

What happens if Canadian houses hit their ‘proper’ value, according to the Economist magazine, and decline by 25 per cent of their value? Every one of the $157-billion of mortgages noted above will be guaranteed by the Canadian taxpayer, and every one of those mortgages will be on homes with negative equity value.

When we connect the dots and look at the real risk, the time has come for the federal government to do the prudent thing and raise the minimum equity payment from 5 per cent to 10 per cent, and at least minimize the hit from the riskiest segment of mortgages insured by CMHC.

We can’t say we didn’t know, when the dots were right in front of us.