Are ultralow interest rates to blame?

More than three-quarters of Canadians (77%) believe home prices in suburban and rural areas have risen to unsustainable levels, and most feel that ultra-low interest rates are to blame.

A full 8 out of 10 people say low borrowing costs are to blame for the recent run-up in home prices, according to a survey from Zoocasa.

The findings reveal disagreement about the impact of low interest rates, with 47% saying they believe it has increased affordability, while 34% disagree with that statement.

The survey also found that more than a third (38%) agree that low interest rates have impacted their desire to buy a property.

With the average home price in Canada as of July at more than $661,000, according to the Canadian Real Estate Association, buyers are needing ever higher incomes in order to afford their purchase. The Zoocasa survey found that half of buyers (50%) have a household income of over $100,000, while 32% reported a household income of under $100,000 and another 20% reporting a household income of over $160,000.

In terms of demographics, the largest cohort of first-time buyers identified as Millennials (born between 1981 and 1996). The next largest segment was Gen X (1965-`1980) at 23% and Baby Boomers (1946-1964) at 6%. Just 3% of Gen Z (1997-2012) self-identified as first-time homebuyers.

Online home sale auctions are now a thing

An Ottawa-based start-up has brought the concept of online auctions to Canadian real estate sales.

Unreserved, which is aiming to reinvent how homes are bought and sold, recently launched its auction platform.

“Our plan is to run a real-time transparent process and it starts by rolling out the red carpet for buyers,” CEO Michael Ryan O’Connor said in the company’s promotional material. “Our goal is to increase buyer confidence by providing full transparency in every step of the process…Also, by removing 4-5% commissions paid by sellers this essentially allows buyers to pay less and for sellers to keep more.”

O’Connor added that by using its platform, buyers can see the other bids, meaning they’re not over-paying by tens of thousands of dollars in a blind-bid process.

“We looked at the current environment, the blind bidding, the pre-emptive bully offers, zero home inspections, and we said ‘its time to bring transparency into the entire process,’” O’Connor noted.

The company is piloting its platform in Ottawa but plans to expand to other cities going forward.

National Bank invests $103 million in Flinks

National Bank of Canada announced that it has invested $103 million in Flinks, a Montreal-based fintech company that enables businesses to connect to their clients’ financial accounts.

Flink recently launched in the U.S., and this investment will allow it to continue its growth to serve “asset managers, credit unions and banks with tools that enable innovation with financial data in North America,” the company said.

“Leveraging financial data still today requires technical know-how,” said Yves-Gabriel Leboeuf, CEO of Flinks. “We want to empower service providers of all sizes to drive positive outcomes for their customers, using financial data.”

Updates from FSRA

The Financial Services Regulatory Authority of Ontario (FSRA) said it is seeking feedback on its proposed licensing exemption for certain businesses engaging in mortgage transactions.

The exemption would apply to select businesses that do not deal with individual consumers. The move is part of the agency’s work—in collaboration with industry partners and the Ministry of Finance—to implement proposed recommendations to the Mortgage Brokerages, Lenders and Administrators Act, 2006, based on a 2019 government review.

To review the proposed guidance and submit your feedback by October 8, 2021, visit FSRA’s website.

FSRA also recently unveiled a new process for criminal background checks as part of its mortgage broker licence applications.

FSRA will have to outsource criminal reference checks to remain compliant with the Police Record Checks Reform Act (PRCRA). Among other things, this process will involve a fee of $40 and require the applicant to initiate a Canada Police Information Centre (CPIC) check through an approved third-party criminal record check provider. To learn more, click here.

published by Steve Huebl

Canada’s inflation rate came in above expectations last week, rising to its highest level in more than a decade.

If above-target inflation persists, it could have ramifications for homeowners in the form of shifting rate-hike expectations.

Canada’s inflation rate came in burning hot at 3.7% for July, according to data released by Statistics Canada. That’s the third consecutive monthly inflation reading that has come in above the Bank of Canada’s neutral range of 1.75% to 2.75%, which is the range needed to support the economy at full employment/maximum output while keeping inflation under control.

But the Bank of Canada continues to believe that elevated consumer prices will prove temporary and are largely the result of an economy recovering from the pandemic-induced slump.

“…inflation is likely to remain above 3% through the second half of this year and ease back toward 2% in 2022, as short-run imbalances diminish and the considerable overall slack in the economy pulls inflation lower,” the Bank said following last month’s interest rate decision. “The factors pushing up inflation are transitory, but their persistence and magnitude are uncertain and will be monitored closely.”

More recently, Bank of Canada Governor Tiff Macklem reaffirmed the messaging that everything is under control in a July 29 Financial Post column. “The Bank of Canada remains firmly committed to keeping inflation low, stable and predictable,” he wrote. “Even with the gyrations caused by the pandemic, inflation has averaged pretty close to target through the past few years to today. You can be confident that we will keep the cost of living under control as the economy reopens.”

But the central bank can only allow high inflation to persist for so long before a policy response is required.

“The Bank of Canada may be willing to tolerate higher inflation while the economy is still re-opening and recovering from the health shock, but it will respond to more lasting price pressures by reducing monetary accommodation,” wrote TD Bank senior economist James Marple in a recent post. “In the near-term, asset purchases are likely to continue to be pared back, with rate hikes likely to follow late next year.”

At the Bank’s last rate decision meeting in July, it announced that it was reducing its bond-buying program to $2 billion per week from $3 billion.

At the height of the pandemic, the BoC embarked on a quantitative easing program in which it purchased at least $5 billion worth of bonds each week to flood the market with liquidity, in turn keeping 5-year bond yields—and by extension, 5-year fixed mortgage rates—lower than they otherwise would be.

Average mortgage rates remain slightly above their all-time lows reached in December. But the question is, for how much longer?

The Timing of Future Rate Hikes

Those concerned about imminent rate hikes can take solace in the Bank of Canada’s repeated forecast that rates won’t increase until the second half of next year.

“We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved. In the Bank’s July projection, this happens sometime in the second half of 2022,” read the BoC’s statement from its July rate meeting.

The bond market’s read on future rate hikes is that consumers can expect one quarter-point rate hike over the next year, which would take the BoC’s overnight lending rate from its current record low of 0.25% to 0.50%.

And despite the latest high inflation figures, the bond market is actually forecasting one less rate hike over the next two years compared to a couple of months ago—it now expects three 25-bps hikes over the next two years, down from four. Looking three years out, the Bank of Canada is expected to deliver five quarter-point rate hikes in total, bringing the overnight rate to 1.50%.

This would cause prime rate to increase, leading to higher monthly payments for many borrowers with variable-rate mortgages. For those with fixed-payment variable mortgages, the amount of their payment going towards paying down the principal will decline, and the amount going towards interest will increase.

If prime rate was to rise 125 basis points over the next three years, the average mortgage payment could increase by approximately $180 a month, or $2,172 a year, based on today’s average mortgage amount and the lowest variable rates available nationally.

Borrowers with fixed-rate mortgages would not be immediately impacted by rising rates until their mortgage comes up for renewal at the end of their term, or unless they choose to refinance.

“While we are not overly concerned of a payment shock for renewals, the increase in mortgage rates will certainly impact purchasing power for many,” economists from National Bank of Canada wrote in a recent note.

Published by Steve Huebl

Roll With It.

Fitness trainer Mandy Gill makes the case for Summer Salad Rolls!

Call them spring rolls, summer rolls, salad rolls, fresh rolls—the common denominator is that we’re certain these are the only kind of rolls you’ll want this summer.

This easy-to-make recipe, bursting with flavour, can be served as a side dish at a sunny barbecue or enjoyed as a full meal on its own. The cost to make rolls at home is a fraction of what you’d pay in a restaurant or grocery store—plus you can add in whatever ingredients you’d like.

I choose to order nearly all the items below directly to my doorstep from Vitasave.ca, which has options for free shipping across Canada and a commitment to make healthy living easy and affordable for everyone. It’s also vegan, gluten-free and dairy-free.

Summer Salad Rolls

Serving: 8-10 rolls

Total Time: 30 min

• 1 package spring roll rice paper wrappers (found in the Asian section of your local grocery store; go for the option with little to no added sodium)
• 1 head romaine lettuce (finely chopped)
• 4-5 large rainbow carrots (peeled into thin ribbons)
• ¼ cup chia seeds
• ¼ cup hemp seeds
• ½ cup fresh mint (this completes the flavour)
• » ½ cup Thai basil (sub cilantro if needed)

Instructions:

1. Take a rice paper and dip it into warm water. Immediately pull it out of the water, letting it drip off for a second before placing it onto a clean surface with a bit of grip (a cutting board works well).
2. Lay carrots side by side in the center of the rice paper. This is where the colour will come from.
3. Layer lettuce, mint, Thai basil, hemp and chia seeds on top.
4. Pull up the bottom of the rice paper wrapper like you would to wrap a burrito, tucking the sides, and meeting at the top edge.
   1. *Tip: use the first roll as an experiment (and the one you eat), seeing as it likely won’t be your prettiest!
5. Cut in half with a sharp knife and serve with the Lemon Garlic Tahini sauce.

Lemon Garlic Tahini

Serving: 2/3 cup

• ½ cup tahini (from raw or roasted sesame seeds)
• ¼ cup warm water, plus more as needed
• 1 tbsp avocado oil
• 1 tbsp Flavorgod, lemon & garlic
• Squeeze of lemon, salt & pepper to taste

Instructions:

1. Add tahini, avocado oil, Flavorgod lemon & garlic, and a squeeze of lemon into a small mixing bowl. Combine together.
2. Add water a little at a time, continuing to whisk, until you have a creamy sauce. Taste and adjust seasonings as needed.
3. If you have any leftover sauce, it can be kept in the fridge for 1-2 weeks. It’s delicious on salads, falafel, veggie burgers, and much more!

Published by the DLC Marketing Team

Mortgage Debt still on the rise.

Mortgage debt in Canada soared above $1.7 trillion in June, growing at a monthly pace never before seen, according to Statistics Canada.

The new figures show mortgage debt grew 9.2% compared to the same time last year, a pace not seen since 2008, and jumped 1.37% since May, which StatCan noted is the largest monthly increase on record.

In the first half of 2021, households have added $81.6 billion in mortgage debt, compared with $108.6 billion over all 12 months of 2020.

Historically low interest rates have spurred demand for housing over the past year, despite record gains in home prices. StatCan added that the Office of the Superintendent of Financial Institutions’ (OSFI) stricter stress test qualification rules for uninsured mortgages came into effect on June 1, “which may have spurred additional borrowing prior to the deadline.”

“While the rise in mortgage debt accelerated, the volume of housing resale activity and the average resale price have been on a downward trend after reaching peaks in March of 2021,” the agency said, noting that there is typically a lag time between the sale of a home and the actual receipt of mortgage funds.

“However, borrowers may also be in the market for a new home, or otherwise be taking additional equity out of their home or consolidating debt when refinancing their existing mortgages,” it added.

Non-mortgage debt also grew in June, led by a 2.7% rise in personal loans and a 1.6% rise in credit card borrowing.

“Credit card debt increased for the fourth month in a row as pandemic-related restrictions eased,” Statistics Canada noted. “Lines of credit also rose by $1.7 billion, but this was fuelled by growth in home equity lines of credit.”

Mortgage borrowing from private non-financial corporations also ticked up in the month, rising 0.9%, or $2.9 billion, to $346.6 billion.

Published by Steve Huebl

Canadian Housing Sales Continue to cool down in July.

Today the Canadian Real Estate Association (CREA) released statistics showing national existing home sales fell 3.5% nationally from June to July 2021–the fourth consecutive monthly decline. Over the same period, the number of newly listed properties dropped 8.8%, and the MLS Home Price Index rose 0.6% and was up 22.2% year-over-year.

While sales are now down a cumulative 28% from the March peak, Canadian housing markets are still historically quite active (see Chart below). In July, the decline in sales activity was not as widespread geographically as in prior months, although sales were down in roughly two-thirds of all local markets. Edmonton and Calgary led the slowdown, but these cities didn’t experience falling sales until recently. In Montreal, in contrast, where sales began to moderate at the start of the year, activity edged up in July.

The actual (not seasonally adjusted) number of transactions in July 2021 was down 15.2% on a year-over-year basis from the record for that month set last July. July 2021 sales nonetheless still marked the second-best month of July on record.

“While the moderation of sales activity continues to capture most of the headlines these days, it’s record-low inventories that should be our focus,” said Cliff Stevenson, Chair of CREA. Most markets are in sellers’ market territory.

New Listings

The number of newly listed homes dropped by 8.8% in July compared to June, with declines led by Canada’s largest cities – the GTA, Montreal, Vancouver and Calgary. Across the country, new supply was down in about three-quarters of all markets in July.

This was enough to noticeably tighten the sales-to-new listings ratio despite sales activity also slowing on the month. The national sales-to-new listings ratio was 74% in July 2021, up from 69.9% in June. The long-term average for the national sales-to-new listings ratio is 54.7%.

Based on a comparison of sales-to-new listings ratio with long-term averages, the tightening of market conditions in July tipped a small majority of local markets back into seller’s market territory, reversing the trend of more balanced markets seen in June.

Another piece of evidence that conditions may be starting to stabilize was the number of months of inventory. There were 2.3 months of inventory on a national basis at the end of July 2021, unchanged from June. This is extremely low – still indicative of a strong seller’s market at the national level and most local markets. The long-term average for this measure is twice where it stands today.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose 0.6% month-over-month in July 2021, continuing the trend of decelerating month-over-month growth that began in March. That deceleration has yet to show up in any noticeable way on the East Coast, where property is relatively more affordable.

Additionally, a more recent point worth noting (and watching) just in the last month has seen prices for certain property types in certain Ontario markets look like they might be re-accelerating. This could be in line with a re-tightening of market conditions in some areas.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 22.2% on a year-over-year basis in July. While still a substantial gain, it was, as expected, down from the record 24.4% year-over-year increase in June. The reason the year-over-year comparison has started to fall is that we are now more than a year removed from when prices really took off last year, so last year’s price levels are now catching up with this year’s, even though prices are currently still rising from month to month.

Looking across the country, year-over-year price growth averages around 20% in B.C., though it is lower in Vancouver and higher in other parts of the province. Year-over-year price gains in the 10% range were recorded in Alberta and Saskatchewan, while gains are closer to 15% in Manitoba. Ontario sees an average year-over-year rate of price growth in the 30% range. However, as with B.C., gains are notably lower in the GTA and considerably higher in most other parts of the province. The opposite is true in Quebec, where Montreal is in the 25% range, and Quebec City is in the 15% range. Price growth is running a little above 30% in New Brunswick, while Newfoundland and Labrador is in the 10% range.

Bottom Line

Sales activity will continue to gradually cool over the next year, but it will take higher interest rates to soften the housing market in a meaningful way. Local housing markets are cooling off as prospective buyers contend with a dearth of houses for sale. Though increasing vaccination rates have begun to bring a return to normal life in Canada, that’s left the country to contend with one of the developed world’s most severe housing shortages and little prospect of much new supply becoming available soon.

Published by Dr. Sherry Cooper & DLC Marketing Team

More Millennials Buying more than one Property

A new survey by realtor Royal Lepage suggests a significant number of Canadians own two or more properties.  It further suggests the majority of those people are renting them out, and Millennials are getting in on the action.

The company focused on homeowners in Canada’s three, biggest urban areas – Montreal, Toronto and Vancouver – and found more than 10% of the respondents have more than one property.

The survey also found that nearly two-thirds of those people in Greater Vancouver (65%) and Greater Toronto (64%) collect rental income at least some of the time.  In Montreal about one-third (35%) said they are collecting at least some rental income.

A further breakdown shows almost half (49%) of secondary property owners in the GTA have the property strictly for rental purposes. Fifteen percent say they use the property themselves and collect rent some of the time.  In Greater Vancouver just over half (51%) use their extra property for rental, with 13% charging rent some of the time.  In Montreal, one-quarter (25%) use the property as a full-time rental.  Nine percent collect rent some of the time.

The survey also revealed an interesting trend in a red hot market that is deemed to be shutting out younger buyers: the proportion of Millennials that own more than one property tends to outpace Boomers with more than one property.

In both Montreal and Toronto, the percentage of people under age 35 who own a second property exceeds the percentage of people over the age of 35.  In Montreal it is 16% compared to 11%.  In Toronto it is 18% compared to 11%.  In Vancouver it is an even split at 14% for each group.

Published by First National Financial