How’s the Market

While week over week showings have dwindled these past few weeks, sales remain strong considering the time of year. 

The first two weeks of December resulted in the third best start to the month for total transactions over the past decade during the same time period. The active listing inventory levels continue to drop, but remain higher than years prior to 2017. Looking back at the months of inventory over the past ten years in Alberta, the average was 7.6 months of inventory in December. We are currently sitting slightly higher than that which suggests that the market is slowing down. 

With less showings occurring, we are seeing a higher percentage of showings result in a transaction which means serious buyers are still looking. 

-Steven Phillips, CIR Realty

HOW’S THE MARKET

After what was one of Alberta’s strongest Novembers on record for sales, we are heading into December with the lowest inventory levels in November since 2005!

The migration into Alberta continues as the population has grown to 4,543,111 which is just about 100,000 more people since the third quarter of 2021. This is putting pressure on the rental market with inventory levels well below the same time as last year, and rent prices climbing as a result. The affordability of housing compared to other major cities in Canada, along with the opportunity for jobs is continuing to keep our Province as a major draw for people to move to.

Looking back at sales in Alberta over the top five Novembers in the past ten years, the sales volume dropped through December and January, recovering to numbers higher than Novembers sales in February of the New Year. The listing inventory for those same years also dropped through December to February, recovering to higher inventories by March the following year. Over the past decade, 50% of time the average price across Alberta dropped from November through to January and then recovered to a higher average price in February than what was recorded the November prior. In that same decade, there were two years where prices increased by January, one year was in March and the other in May.

ALBERTA SHOWINGS

When we look at the showings for listings across the Province, the trends show that sellers may get one more uptick of activity this coming weekend before the Holiday slow down occurs. 

CIR REALTY SHOWINGS

The showings at CIR Realty’s listings are also showing slowing activity but the inventory under $300,000 had an increase of activity. This is likely due to higher interest rates forcing buyers to explore lower price ranges. The showings resulting in transactions is still higher than average for the year sitting around 18%, but that number is dropping week over week.

Summary

Based on all of the information above, it is reasonable to conclude that if sellers want to sell in the coming months they will need to have a compelling price for buyers. If there is a time for buyers to take advantage of lowering price points, it will likely be in December and January as markets move into balanced and in some cases, buyers markets. But we anticipate sales to increase from February through Spring with the caveat being how low the listing inventory gets as we normally don’t see listings start to climb higher until March. Without inventory, we may see lower sales numbers for longer which will keep more competitive conditions in the market. 

With population increasing, rentals being competitive, sales remaining strong and low inventory levels, it is setting us up for a competitive Spring Market in the New Year.

-Steve Phillips, CIR Realty

Winter Checklist

  • Check and clean or replace furnace air filters each month during the heating season. Ventilation systems, such as heat recovery ventilator filters, should be checked every two months.
  • After consulting your hot water tank owner’s manual, drain off a dishpan full of water from the clean-out valve at the bottom of your hot water tank to control sediment and maintain efficiency.
  • Clean your humidifier two or three times during the winter season.
  • Vacuum bathroom fan grills to ensure proper ventilation.
  • Vacuum fire and smoke detectors, as dust or spiderwebs can prevent them from functioning.
  • Vacuum radiator grills on the back of refrigerators and freezers, and empty and clean drip trays.
  • Check gauges on all fire extinguishers, and recharge or replace as necessary.
  • Check fire escape routes, door and window locks and hardware, and lighting around the home’s exterior. Ensure your family has good security habits.
  • Check the basement floor drain to ensure the trap contains water. Refill with water if necessary.
  • Monitor your home for excessive moisture levels – for instance, since condensation on your windows can cause significant damage over time and pose serious health problems, this requires corrective action.
  • Check all faucets for signs of dripping and change washers as needed. Faucets requiring frequent replacement of washers may be in need of repair or replacement.
  • If you have a plumbing fixture that’s not used frequently, such as a laundry tub or spare bathroom sink, tub or shower stall, briefly run some water to keep water in the trap.
  • Clean drains in the dishwasher, sinks, bathtubs and shower stalls.
  • Test plumbing shut-off valves to ensure they’re working and to prevent them from seizing.
  • Examine windows and doors for ice accumulation or cold air leaks. If found, make a note for repair or replacement in the spring.
  • Examine attic for frost accumulation. Check roof for ice dams or icicles. If there’s excessive frost or staining of the underside of the roof, or ice dams on the roof surface, be sure to have an expert look into the issue.
  • Check electrical cords, plugs and outlets for all indoor and outdoor seasonal lights to ensure fire safety. If showing signs of wear, or if plugs/cords feel warm, replace immediately.

Bank of Canada increases policy interest rate

The Bank of Canada today increased its target for the overnight rate to ½ %, with the Bank Rate at ¾ % and the deposit rate at ½ %. The Bank is continuing its reinvestment phase, keeping its overall holdings of Government of Canada bonds on its balance sheet roughly constant until such time as it becomes appropriate to allow the size of its balance sheet to decline.

The unprovoked invasion of Ukraine by Russia is a major new source of uncertainty. Prices for oil and other commodities have risen sharply. This will add to inflation around the world, and negative impacts on confidence and new supply disruptions could weigh on global growth. Financial market volatility has increased. The situation remains fluid and we are following events closely.

Global economic data has come in broadly in line with projections in the Bank’s January Monetary Policy Report (MPR). Economies are emerging from the impact of the Omicron variant of COVID-19 more quickly than expected, although the virus continues to circulate and the possibility of new variants remains a concern. Demand is robust, particularly in the United States. Global supply bottlenecks remain challenging, although there are indications that some constraints have eased.

Economic growth in Canada was very strong in the fourth quarter of last year at 6.7%. This is stronger than the Bank’s projection and confirms its view that economic slack has been absorbed. Both exports and imports have picked up, consistent with solid global demand. In January, the recovery in Canada’s labour market suffered a setback due to the Omicron variant, with temporary layoffs in service sectors and elevated employee absenteeism. However, the rebound from Omicron now appears to be well in train: household spending is proving resilient and should strengthen further with the lifting of public health restrictions. Housing market activity is more elevated, adding further pressure to house prices. Overall, first-quarter growth is now looking more solid than previously projected.

CPI inflation is currently at 5.1%, as expected in January, and remains well above the Bank’s target range. Price increases have become more pervasive, and measures of core inflation have all risen. Poor harvests and higher transportation costs have pushed up food prices. The invasion of Ukraine is putting further upward pressure on prices for both energy and food-related commodities. All told, inflation is now expected to be higher in the near term than projected in January. Persistently elevated inflation is increasing the risk that longer-run inflation expectations could drift upwards. The Bank will use its monetary policy tools to return inflation to the 2% target and keep inflation expectations well-anchored.

The policy rate is the Bank’s primary monetary policy instrument. As the economy continues to expand and inflation pressures remain elevated, the Governing Council expects interest rates will need to rise further. The Governing Council will also be considering when to end the reinvestment phase and allow its holdings of Government of Canada bonds to begin to shrink. The resulting quantitative tightening (QT) would complement increases in the policy interest rate. The timing and pace of further increases in the policy rate, and the start of QT, will be guided by the Bank’s ongoing assessment of the economy and its commitment to achieving the 2% inflation target.

Information note

The next scheduled date for announcing the overnight rate target is April 13, 2022. The Bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the MPR at the same time.

-Bank of Canada

Mortgage Loan Insurance: Quick Reference Guide

This handy quick reference tool provides helpful information to submit applications to CMHC for homeowner and small rental loans, for all CMHC programs: Purchase, Improvement, Newcomers, Self-Employed, Green Home, Portability, and Income Property.

Benefits of mortgage insurance

Some of the benefits of CMHC mortgage loan insurance include:

  • Available for purchase of an existing residential property with or without improvements and for new construction financing.
  • Our Green Home program offers a partial mortgage loan insurance premium refund of up to 25%. Refunds are available directly to borrowers who buy, build or renovate for energy efficiency using CMHC-insured financing. Find out more with our Green Home Program.
  • Self-employed borrowers with documentation to support their income have access to CMHC mortgage loan insurance.
  • Our portability feature saves money for repeat users of mortgage loan insurance by reducing or eliminating the premium payable on the new insured loan for the purchase of a subsequent home.

Loan-to-Value (LTV) ratios

For homeowner loans (owner-occupied properties), the Loan-to-Value ratio for 1–2 units is up to 95% LTV. For 3–4 units, the ratio is up to 90% LTV.

For small rental loans (non-owner occupied), the ratio is up to 80% LTV.

Minimum equity requirements

For homeowner loans, the minimum equity requirement for 1–2 units is 5% of the first $500,000 of lending value and 10% of the remainder of the lending value. For 3–4 units, the minimum equity requirement is 10%.

For small rental loans, the minimum equity requirement is 20%.

Purchase price / lending value, amortization and location

For both homeowner and small rental loans, the maximum purchase price / lending value or as-improved property value must be below $1,000,000.

The maximum amortization period is 25 years.

The property must be located in Canada and must be suitable and available for full-time, year-round occupancy. The property must also have year-round access including homes located on an island (via a vehicular bridge or ferry).

Traditional and non-traditional down payments

traditional down payment comes from sources such as savings, the sale of a property, or a non-repayable financial gift from a relative.

non-traditional down payment must be arm’s length and not tied to the purchase and sale of the property, either directly or indirectly such as unsecured personal loans or unsecured lines of credit. Non-traditional down payments are available for 1–2 units, with 90.01% to 95% LTV, with a recommended minimum credit score of 650.

Creditworthiness

At least one borrower (or guarantor) must have a minimum credit score of 600. In certain circumstances, a higher recommended minimum credit score may be required. CMHC may consider alternative methods of establishing creditworthiness for borrowers without a credit history.

Debt service guidelines

The standard threshold is GDS 35% / TDS 42%. The maximum threshold is GDS 39% / TDS 44% (recommended minimum credit score of 680). CMHC considers the strength of the overall mortgage loan insurance application including the recommended minimum credit scores.

Interest rates

The GDS and TDS ratios must be calculated using an interest rate which is the greater of the contract interest rate or the Bank of Canada’s 5-year conventional mortgage interest rate.

Advancing options

Single advances include improvement costs less than or equal to 10% of the as-improved value.

Progress advances include new construction financing or improvement costs greater than 10% of the as-improved value. With Full Service, CMHC validates up to 4 consecutive advances at no cost. For Basic Service, the Lender validates advances without pre-approval from CMHC.

Non-permanent residents (homeowner loans only)

Non-permanent residents must be legally authorized to work in Canada (i.e. a work permit). Mortgage loan insurance is only available for non-permanent residents for homeowner loans for 1 unit, up to 90% LTV, with a down payment from traditional sources.

-CMHC

Homeowners income was about double that of renters in 2016

According to new data from Statistics Canada’s Canadian Income Survey and Survey of Labour and Income Dynamics, the average before-tax household income, adjusted for inflation, increased 9.6% from $81,200 in 2006 to $89,000 in 2016.

Canadian homeowners’ average household income was roughly double that of renters throughout the 2006 to 2016 period. However, renters’ average household income grew more between 2006 and 2016 with a 14.4% increase compared to 9.7% for homeowners.

In 2016, Alberta had the highest average provincial household income at $107,500 while New Brunswick had the lowest at $73,200. Differences in the level of before-tax household income across provinces also existed when households were grouped into homeowners and renters.

Newfoundland and Labrador had the highest growth rate in the average before-tax household income between 2006 and 2016, at 25.8%. Alberta was the province with the lowest growth rate in the average before-tax household income over the same period, at 7.8%. The growth rate in average before-tax income varied across tenure groups.

In 2016, Edmonton had the highest average before-tax household income in selected Metropolitan Areas at $113,500 while Trois-Rivières had the lowest at $66,500.

The average before-tax household income declined in Hamilton, St. Catharines-Niagara and London between 2006 and 2016, with the largest rate of decline of -8.8% registered in London. Other selected Metropolitan Areas experienced positive growth in the average before-tax household income over the same period, which ranged from 0.3% in Thunder Bay to 30.1% in Saskatoon.

Average before-tax household income, by housing tenure (owner and renter), Canada,1 2006 – 2016 (2016 constant dollars)

 Text version

1 The Canadian Income Survey and the Survey of Labour and Income Dynamics include all individuals in Canada except residents of Yukon, the Northwest Territories and Nunavut, residents of institutions, persons living on reserves and other Aboriginal settlements in the provinces and members of the Canadian Forces living in military camps. Overall, these exclusions amount to less than 3 percent of the population.

Source: Statistics Canada, Canadian Income Survey 2012 – 2016. Survey of Labour and Income Dynamics 2006 – 2011

Average before-tax household income, all households, selected Metropolitan Areas, 2006 and 2016 (2016 constant dollars)

 Text version

Source: Statistics Canada, Canadian Income Survey 2012 – 2016, Survey of Labour and Income Dynamics 2006 – 2011

-CMHC

Real Estate Market Update

Real Estate Market Update | March 2018 

What a difference a year can make. Year-over-year we are seeing significant changes throughout real estate markets across Canada. In each of the four major markets I’ve reviewed, Sales have dropped and Active Listings are on the rise, which means Beauty Contests and Price Wars will dominate the marketplace. 

Year-over-year, Vancouver is -30% in Sales, Edmonton -12%, Calgary -27% and Toronto nearly -40%. These are noteworthy changes and deserve some evaluation but I don’t think the sky is falling. Markets change but we as professionals need to be able to change with them.

Calgary, AB

Comparing March 2018 to March 2017, sales are down just over 27% and inventory is up almost 25%.  This means as of March 2018, Calgarians are working with roughly 4.6 months of inventory.  There’s no doubt you are in a shrinking market which means there are fewer sales happening for the same amount of people.

Richard Robbins

Housing Market Inventory on the Rise

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.

-CREB

What to know if you’re considering a mortgage from an alternative lender.

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.

-TARA DESCHAMPS, Globe & Mail