As expected, slow sales this quarter have persisted through March in the City of Calgary. This is not a surprise, after stronger growth in sales at the end of last year following the announced changes to the lending market.
First quarter sales totaled 3,423 units, nearly 18 per cent below last year’s levels and 24 per cent below long-term averages. Easing sales and modest gains in new listings caused inventories to rise and months of supply to remain above four months.
“Economic conditions are slowly improving, but it has not been enough to outpace the current impact of higher lending rates and more stringent conditions,” said CREB® chief economist Ann-Marie Lurie.
“We are entering the most active quarters in the housing market with more inventory, which could create some price fluctuations. However, the improving economy is expected to prevent overall prices from slipping by significant amounts.”
While prices trended down on a quarterly basis, they remained relatively unchanged over last year’s levels due to modest gains in the detached sector offsetting declines in the apartment sector.
The citywide benchmark price for detached product averaged $502,000 in the first quarter. This is slightly lower than the fourth quarter of last year, but comparable to levels recorded in the first quarter of last year. In March, the detached price reached $503,800, 3.6 per cent below pre-recession highs, but one per cent above the lows recorded during the recession.
“The market today is better than what we experienced at the peak of the recession,” said CREB® president Tom Westcott.
“You can find good value if you’re looking to buy a home, and you can also get good value if you’re selling. Being well-informed, in any economic condition, is the key, because there are differences in the market depending on what type of property it is and where it is located.”
Detached market inventories in the first quarter of 2017 were low compared to historical standards. This year, detached inventories have averaged 2,573 units over the first quarter, 10 per cent below first quarter averages recorded during 2015 and 2016.
Spring will have more inventory than last year, slowing progress on price recovery. However, the amount of price adjustment will vary depending on competing supply by location and product type.
Samantha Brookes has been warning Canadians to take a close look at the clauses in their mortgage contracts for years, but her refrain has become a bit more prevalent in recent months.
Since the Office of the Superintendent of Financial Institutions’ mortgage stress test was implemented in January, the founder of the Mortgages of Canada brokerage has seen “a huge influx” of Canadians who fail to qualify for a bank mortgage turning to alternative lenders that range from risky loan sharks to larger, more conventional companies like Home Trust.
While alternative lenders can provide a lifeline for Canadians who have run out of other financing options, Brookes said they come with pitfalls for those who don’t bother looking at the fine print.
“You need to read those contracts,” she said. “(With an alternative lender), the interest rates are higher, the qualifying rate is higher than if you were going with a traditional bank and they are going to charge one per cent of the mortgage amount (as a lender’s fee) for closing, so that means your closing costs increase.”
Alternative lenders tend to offer less wiggle room on their terms, so Brookes said that means you should pay special attention to another dangerous term she’s seen slipped into mortgage contracts: the sale-only clause.
It’s less common, Brookes said, but if left in, it might mean the only way you can break your mortgage is by selling your home. She usually makes sure it’s nixed from her clients contracts immediately.
She also advises mortgage-seekers to research a potential lender’s reputation, which can easily be done online. Looking up some lenders will reveal their involvement in growing strings of court cases, she said.
“If they are constantly in court fighting with consumers for money, are you willing to put yourself at risk with that kind of person?” Brookes recommended asking yourself.
Still, she said alternative lenders “that don’t end up in court every two seconds” are out there and can offer a good mortgage, if you do your research.
Broker Ron Alphonso has seen what happens when you don’t look into your lender. He recently heard from a couple who borrowed $100,000 via a paralegal posing as a broker, who then convinced the couple to give the money back to him so he could invest it on their behalf. Instead of investing it, the paralegal disappeared to Sri Lanka with the funds, leaving the couple on the hook for the money and resulting in eviction from their home.
“They got very, very poor advice,” Alphonso said. “Apparently the person that arranged the mortgage was an agent and paralegal that has since been disbarred. If they had a lawyer working for them, at least the lawyer could have said (before they signed the mortgage) maybe this isn’t right.”
Alphonso recommends seeking advice from a broker, who he said should also be questioned about how tolerant a lender will be if you were to default on one of your payments.
Some lenders quickly force their clients into a power-of-sale or foreclosure, while others will find a way to work out an arrangement that will allow them to keep their home.
“If you are already in some kind of financial problem and you go to a lender that is not flexible, you make the situation worse,” Alphonso said. “If you miss one payment, (within) 15 days you can be in power-of-sale.”
When that happens, he often sees people refuse to leave their home and try to fight the power-of-sale or foreclosure. They take the matter to court and end up spending tens of thousands of dollars in legal fees that can eclipse any remaining equity they might have in their home.
If they lose their case, which Alphonso said happens often, they end up with a massive lawyer’s bill, no equity to cover it and no place to live.
That’s part of why he said those seeking financing should have an exit strategy to get out of any mortgages they sign with an alternative or private lender with a higher interest rate.
“Your goal should always be to get to a lower interest rate,” he said. “If they don’t go in with a true goal of how to get out of this private mortgage, there will be a problem down the road.”
Alphonso recommended looking for an open mortgage, where you can prepay any amount at any time without a compensation charge or a prepayment limit that you would often find in a closed mortgage.
Open mortgages come with higher interest rates, but give buyers the option to switch to a cheaper lender if something happens. However, switching does often come with penalties, he said.
Because some agents and brokers don’t give enough information or fully explain penalties and clauses, he said the best way to keep out of trouble when seeking a mortgage is to ask lots of questions and understand what you’re getting into before signing on the dotted line.
The era of pleasant surprises for people renewing their mortgage is done.
Years of falling interest rates in the aftermath of the 2008-09 financial crisis taught a generation of home buyers that renewing a mortgage is a chance to reduce your payments. Now, we’re heading into the first wave of postcrisis renewals at higher mortgage rates.
If you bought your house five years ago and chose a mortgage with the ever-popular five-year term, rate hikes since last summer mean your payments are headed higher on renewal. Competitively discounted fixed five-year mortgage rates today run from 3.19 per cent to 3.59 per cent, depending on your particular home and mortgage details. Five years ago, a comparable rate was 2.74 per cent. The lowest five-year rate widely available in the past five years was 2.44 per cent in mid-2016, according to RateSpy.com.
David Larock of Integrated Mortgage Planners said he’s starting to hear from homeowners who are taking in this shift in rates. “I get e-mails from people once in a while to say, if you can get me my old rate of 2.49 per cent, I’d be happy to renew,” he said. “I have to break their hearts.”
Higher rates are just half the story. New mortgage-industry rules are complicating the process of taking your mortgage elsewhere if you don’t like the rate offered by your current lender. Vince Gaetano, a broker with MonsterMortgage.ca, said a lot of people seem to think the new rules applied only to first-time buyers. “Now, they’re coming up to their renewals and they’re saying, I had no idea this impacted me. I would have planned for this last year.”
The new rules require buyers with a down payment of 20 per cent or more to undergo a stress test that ensures they could afford their mortgage payments at the greater of the Bank of Canada’s five-year benchmark rate (now 5.14 per cent) or the actual rate being offered plus two percentage points. People with down payments below 20 per cent already faced a stress test, but it was set at the five-year Bank of Canada rate and thus slightly less stringent.
For existing homeowners, the stress tests are a non-factor as long as they’re renewing their mortgage with their current lender. If they want to move the mortgage to a different lender, a stress test must be applied. Unless you can pass the stress test, you’re likely stuck with your current lender. Mr. Gaetano expects lenders, notably the banks, to use the new rules as an opportunity to become less competitive in the renewal rates offered clients who appear to be less creditworthy. Better rates may be out there, but these clients won’t be able to get them.
A recent column looked at how people refinancing their mortgages to add other debts must also pass the stress test now. Refinancing is a popular tactic used by people who are getting overwhelmed by their debts. How popular? Mr. Gaetano said about 80 per cent of his clients who are up for their first mortgage renewal have in the past refinanced as opposed to simply renewing.
The biggest rate shocks will be felt by people who thought they were being prudent borrowers by putting down 20 per cent or more and thus avoiding the cost of mortgage-default insurance. This insurance makes a mortgage more attractive to lenders because the equity built up in the house means they won’t lose money if borrowers can’t repay what they owe.
That competitive 3.19-per-cent, five-year fixed rate mentioned earlier is for people who started with a so-called high-ratio mortgage, where the down payment is less than 20 per cent, and/or for those who have a mortgage that is less than 65 per cent of the current value of their home. Also, the purchase price had to be below $1-million. The best rate applies here because the mortgage is insured against default.
Expect rates in the area of 3.39 to 3.59 per cent if you’re renewing a mortgage of between 65 per cent and 80 per cent of the home’s current value (for example, a couple that put down 20 per cent at the time of purchase several years ago) and/or had an original purchase price of $1-million and higher. The same applies to people who are refinancing when they renew.
If years of declining rates have reduced the motivation for homeowners to shop around for a mortgage deal, Mr. Larock expects that to change this spring. “If their costs are going up, a lot of people are going to be more inclined to see what else is out there.”
Canada’s national average home price was down five per cent and sales volume was down 16.9 per cent in February compared with a year ago, evidence that many buyers raced to purchase before new mortgage rules came into effect.
There was also a 6.5 per cent decline in transactions between January and February, the second month-over-month decline and the lowest reading in nearly five years, the Canadian Real Estate Association reported Thursday.
CREA’s latest monthly statistics show that home sales were down in February in almost three quarters of all local housing markets tracked by the national association.
“The drop off in sales activity following the record-breaking peak late last year confirms that many homebuyers moved purchase decisions forward late last year before tighter mortgage rules took effect in January,” said Gregory Klump, CREA’s chief economist in a statement Thursday.
The number of homes sold nationally in December hit a record high, ahead of a new stress test for uninsured mortgages that requires potential buyers to show they can service their mortgage payments if rates increase.
The federal banking regulator’s tougher rules, which took effect Jan. 1, now require a stress test to be applied even to borrowers with more than 20 per cent down payment.
To qualify for federally regulated mortgages, borrowers must be able to afford interest rates that are two percentage points above the contracted rate or the Bank of Canada’s five-year benchmark rate, whichever is higher.
The stricter residential mortgage lending regulations introduced by the Office of the Superintendent of Financial Institutions were aimed at reducing risk in the market amid high housing prices.
Homebuying activity has also been dampened by the Bank of Canada’s move in January to hike interest rates to 1.25 per cent. The quarter-point increase was the central bank’s third since last summer, after hikes in July and September. In January, Canadian home sales fell by 14.5 per cent from the previous month, according to CREA’s figures.
The national average house price for homes sold in February 2018 was just over $494,000, down five per cent from a year earlier. But excluding Toronto and Vancouver, the country’s most active and most expensive markets, the national average price was just under $382,000, up 3.3 per cent from $369,728 a year ago.
The number of newly listed homes in February increased by 8.1 per cent, following a plunge of more than 20 per cent in the month prior. However, new listings across the country in February were still 6.4 per cent below the 10-year monthly average and 14.6 per cent below the peak reached in December 2017. New home listings in February were also below the levels recorded every month last year except January 2017.
Beginning April 1, 2018, if a consumer is buying a new condominium in Alberta from a developer – an Alberta lawyer must hold the buyer’s purchase deposit in trust while the condominium is being built. Service Alberta announced this change in October 2017.
Prior to April 1, a real estate brokerage or the condominium developer could hold a buyer’s deposit in trust.
Real estate professionals who are representing buyers during their purchase of a new condominium from a developer should confirm the developer uses a lawyer who is an active member of the Law Society of Alberta, and that they operate a trust account under the Legal Profession Act. You must also ensure your clients write their deposit cheques to the developer’s lawyer, in trust, and not to the developer or a real estate brokerage.
Under this new rule, a developer who receives a buyer’s deposit must ensure their lawyer deposits it in the lawyer’s trust account within three business days of receiving it. If the developer agrees, a buyer can have their own lawyer hold their deposit in trust.
Take a few minutes to review the Condominium Developer Info Sheet from Service Alberta for more information about additional Condominium Property Act changes coming on April 1.
U.S. President Donald Trump sent shockwaves through Canada’s economy this past week, first promising punishing tariffs on steel and aluminum imports, then at the last minute exempting Canada from those tariffs, at least temporarily.
It’s becoming painfully clear that Trump’s policies (or pronouncements, or whims, or whatever they are) have the potential to upend Canada’s economy, and with it, the lives of Canadians. So maybe it’s time for this real estate-obsessed nation of ours to pose a question that until recently seemed too obscure — or maybe just too weird — to ask: What does Donald Trump mean for Canada’s housing market?
It may seem counter-intuitive, but Trump’s aggressive protectionism might actually work to support house prices.
The Bank of Canada this week decided against yet another interest rate hike, and among its reasons was this statement: “Trade policy developments are an important and growing source of uncertainty for the global and Canadian outlooks.”
Analysts took that to mean the BoC is worried that Trump’s protectionist measures, such as the steel and aluminum tariffs or potential withdrawal from NAFTA, could harm Canada’s economy. And if Trump manages to scare the BoC into a more dovish outlook on the economy, it will mean fewer interest rate hikes in the months to come.
That might actually be good news for Canada’s heavily indebted mortgage borrowers, who are under increasing pressure these days. We’ve seen the BoC hike interest rates three times since last summer, and major mortgage lenders have followed suit. Meanwhile, new mortgage rules are forcing some homebuyers to scale back their ambitions.
The result is a slowing housing market, both nationally and in the two super-pricey markets of Toronto and Vancouver. And the Bank of Canada might now be getting worried about the impact of that slower housing market on Canada’s economy.
“Notably, household credit growth has decelerated for three consecutive months,” the Bank noted in its decision Wednesday.
The irony of it is that, if Trump were to abandon his protectionist measures and the BoC were to assume a more rosy outlook, it would likely mean more rate hikes ahead, and more downward pressure on housing.
All of which is not to say we should be hoping for Trump to slap Canada with massive tariffs or cancel NAFTA; a move like that would cause all sorts of economic damage of its own, regardless of housing. But if Trump pulls the trigger on his protectionist agenda, the Bank of Canada may well respond by freezing interest rates, and some analysts say it may even reverse course and start dropping them.
So a trade war with Trump’s America, while likely to be ugly, will at least help keep those property values from crashing. That may be the closest thing to a silver lining in this whole mess.
From tiny homes to laneway dwellings, Canadians are embracing an increasing range of unique and unusual abodes. But whatever you choose to call “home,” chances are a team of insurance professionals have been working on coverage specially designed to underwrite you.
Tiny homes are increasingly common, especially in urban areas where housing costs have skyrocketed, says Stefan Tirschler, CIP, product and underwriting manager, Square One Insurance Services Inc.
“In the beginning, tiny homes were lived in by a small community of people experimenting with a new way of living,” he says. “Today, we’ve seen zoning changes across the country, and that’s resulted in a wide range of small dwellings on the market. This includes anything from miniature frame homes, portable frame homes on wheels, tiny homes built from shipping containers, laneway homes—even yurt-style homes.”
Tirschler notes that underwriting for tiny homes tends to build on safety standards for existing homes or materials used in the structure.
“For example, a shipping container home is likely to be similar in coverage to a standard home once it’s been delivered,” he says.
Smaller prefabricated or manufactured homes have also become more common. A manufactured home is typically delivered to the site on a chassis, lifted off and mounted onto a foundation. A slight variation, a park model home, remains on the chassis, but can be lived in as a permanent residence.
“The question we ask ourselves as underwriters is, where do these homes fit and to what standard do they need to be built?” says Michael Hewett, senior product manager, leisure and lifestyle, with Aviva Canada Inc. “The Canadian Standards Association, for example, offers standards for manufactured homes and park model homes. We also look to these same standards as a basis to underwrite tiny homes that are built in a similar manner.”
He notes, however, that owners of manufactured homes should seek an appropriate amount of coverage for additional living expenses.
“A manufactured home may have lower value, but it could take up to year to order a new home from a manufacturer,” Hewett says. “We allow customers living in these homes to buy additional coverage for living expenses.”
Homes designated as heritage buildings also offer unique challenges for underwriters, says Jackie Murison, FCIP, CRM, ICP, portfolio and innovation specialist with The Commonwell.
“The policy must take into consideration when the home was built, whether someone of cultural or historical importance lived in it, or any unique building materials that must be used in a rebuild,” she says. “You couldn’t replace plaster walls with drywall or stained glass with regular glass. The homeowner won’t have a choice on that. Properly valuing those rebuilds can be a big challenge.”
She notes that the Town Hall in Lindsay, Ont., is a heritage building that happens to be two feet out of alignment because the builder shifted the surveyor’s pegs.
“If there was an insured loss, that same alignment would have to be considered,” she says.
High-value homes also require custom coverage, says Anthea McFarland, CIP, senior vice-president, personal insurance at HUB International.
“In many cases, we’re talking about homes with an average value of up to $1,000 per square foot, reflecting such building materials as the most valuable marble and granite finishes,” she says. “We send out specialist appraisers to these homes to come up with a number that covers exactly how much it would cost to replace the custom detail in these homes.”
Often, Canadian owners of high-value homes also own properties in the U.S., the Bahamas or the UK, and brokers such as HUB International work with a global network of insurers to cover all of the dwellings under a single policy.
“High-net-worth insurers also offer a range of additional policy coverage,” says McFarland. “These can cover anything from appliance failure and maintenance, kidnap or ransom insurance, and even cyberbullying insurance, to cover the services of a therapist for child victims. Some clients also request standalone insurance policies to cover specialized art collections, including van Goghs and Warhols. As a broker for this client group, we endeavour to be a one-stop shop.”
Canada’s housing market continues to evolve in fresh new ways.
“Technology continues to reduce the distance between customer and underwriter,” says Tirschler. “We’re much better positioned to take notice of customer needs and expectations and adapt and respond to them much more quickly – wherever and however they choose to live.”
This article was created by Content Works, Postmedia’s commercial content division, on behalf of the Insurance Institute of Canada.
The Killarney project is easing regulations to allow for off-site prefabrication, and the builder believes it will be the first of many homes like it
In a backyard in the southwest community of Killarney, three shipping containers are being positioned above a two-car garage to create 480 square feet of living space for Chad Saunders and his wife, Jennifer Head. The finished residence will be the first laneway shipping-container home in Calgary.
Jeremy Johnson, founder of the Calgary-based builder responsible, Modern Huts, believes it will be the first of many.
“Since the containers were put in position a couple of weeks ago, we’ve had a lot of inquiries on costs and timescales,” Mr. Johnson says. “Killarney is a community which is pretty open to density and innovation and people are interested and excited to see something like this come to Calgary.”
“Most container companies are building laneway homes fully modular and then moving the completed units into position, which is a very efficient and economical way to build, but we’re having to site-build for this project because of the city’s inspection process. They want to see all the processes as the build unfolds,” he says.
This has meant Mr. Johnson and his team will be on site for approximately three months, rather than the five days which would be required were they permitted to complete the build off-site.
Since starting the project, Mr. Johnson says this particular inspection process has been revised and the city will allow container homes to be built fully prefabricated in future.
“Until now, you could use modular building techniques but the city was sticky on anything that was fully prefabbed and delivered, even with modular homes,” he says. “Laneway – and specifically container homes – are still very new to Calgary so the city has been pretty cautious, but we’re seeing that change now, which is good news.”
Despite the challenges, Mr. Johnson says the build, which is his company’s third container home, is going well. He expects the entire one-bedroom suite, including the two-car garage underneath, to come in around $130,000.
“The cost to build will be similar to a stick-frame build but it will be quicker, even without building off-site, more durable and will result in a far more energy efficient building. The R-values we’re reaching are really high and we’re hopeful of achieving Passive [House] standards someday,” he says. (Passive House is a standard for ultralowenergy efficiency.)
“The exterior of the suite is being left largely as metal, so will require virtually no maintenance, and we’re also generating a lot less garbage,” Mr. Johnson says. “We have eight bags of garbage on site right now and drywall starts this week. With a stick build, at the same stage, we’d have a full bin of waste leaving the site already.”
Upon completion in March, Mr. Saunders and Ms. Head will move into the container suite with their eight-year-old son while Mr. Johnson renovates their 1950 bungalow. Mr. Saunders has owned the property on the corner of 32nd St. and 26thAve. S.W. for 19 years. He bought it as a starter home but, as the years passed, he and his wife started talking about paying off the mortgage and renovating, rather than moving.
“When we started to approach builders about doing a renovation, most of them said we’d be better to knock the house down and built from scratch, but we really weren’t interested in building a monster house,” he says. “When Jeremy suggested we include the old garage in the reno, that’s when we started to think about putting in a suite. We’ve always liked the idea of shipping-container homes – what they stand for from an environmental perspective and also how they look.”
The couple have no firm long-term plans for their garage-top property yet but Mr. Saunders, who works in the arts, says they could end up letting it out to an artist in residence.
“If we find the perfect renter, then great, but we’re also considering options with organizations like Alberta Ballet which need temporary accommodation for artists from time to time. We think that could be a really fun and interesting way to use the space,” he says. “We actually hope to engage a local artist to create a mural on the side of the container which faces into the yard when it’s finished, too.”
Mr. Saunders also sees long-term value in having a second residence on the family property.
“We know from relatives how expensive care facilities can be and how challenging that is for seniors. We figure that maybe in 30 years, if our family needs a caregiver, someone could move into that house. It doesn’t hurt to think ahead and have options,” he says. “We’d rather diversify the land we have now than build a huge house that we’ll struggle to take care of in the future.”
Mr. Johnson says caregiving is one of the main motivators for clients inquiring with his company about laneway homes.
“When we finish this project, we move onto another shipping container laneway home in Silver Springs. It’ll be a four-container suite providing 640 square feet of living space and two bedrooms for a daughter and her son who are moving back onto the family property to provide care to her parents,” he says. “Silver Springs is a neighbourhood where you find a lot of retirees and we’ve had other inquiries for the same kind of project from that community.”
Other projects planned for summer include a laneway office for a client in Mount Royal and a solar-powered, hydroponic greenhouse for a client in Briar Hill who’s interested in year-round growing. Both would be fashioned from a single shipping container.
Mr. Johnson says in time he’s like to start to prefabricate shipping container suites and have them shipped across Canada. But, for now, he’s focusing on the local market in Calgary where laneway homes are becoming more common and, he says, there’s “virtually no competition for small-scale, backyard shipping-container projects.”
Good news, stressed-out, would-be homebuyers: You may not have to give up on your dream of owning a home in one of Canada’s pricey cities just yet.
For the first time in nearly three years, housing affordability in Canada is actually improving.
The National Bank of Canada’s home affordability measure fell 0.2 points in the fourth quarter of 2017, meaning that an average mortgage on a representative home was slightly cheaper than it was a quarter earlier.
That’s the first time that has happened since the second quarter of 2015, the bank said in a client note Thursday.
It’s largely thanks to two phenomena:
Falling house prices in the Toronto area over the past half year
“The countrywide fourth-quarter wage growth of 5.7 per cent annualized was the strongest in more than three years,” National Bank economists Matthieu Arseneau and Kyle Dahms wrote.
How much of your income you need to spend to afford an average mortgage
They say this strong wage growth is going to have to keep going to keep affordability stable, because other factors are pushing housing costs upwards — namely, rising interest rates that have led to rising mortgage rates.
Mortgage rates have risen about 0.58 percentage points since the middle of 2017, Arseneau and Dahms said.
“The most expensive markets such as Toronto and Vancouver are the most sensitive to interest rate hikes,” they wrote.
“In Toronto, the rate rise combined with the tax on foreign purchases seems to have suppressed demand. Prices were down in Q4 and are likely to continue falling in 2018.”
Vancouver, they say, is “another story.” The city is less affordable today than at any other point since the early 1980s, having recovered solidly from the introduction of a foreign buyers’ tax in 2016.
But the new provincial budget, tabled this week, increased the foreign buyers’ tax to 20 per cent from 15 per cent, and introduced a speculators’ tax on properties owned by people who don’t live in British Columbia, assessed at two per cent of the home’s value.
The National Bank economists say that “is likely to lower prices in the Vancouver market in 2018.”
In other words, both Toronto and Vancouver have a good chance of becoming more affordable this year, assuming wages continue to grow.
And that may be the best news prospective homebuyers have gotten in quite a long time.