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

Canada’s slumping housing market weighs on Home Capital’s loans

The tumult in Canada’s housing market is starting to take its toll on lenders, with Home Capital Group Inc. reporting a plunge in third-quarter originations.

Home Capital, which lends largely to borrowers considered somewhat riskier than prime customers, said Tuesday that single-family mortgage originations plummeted 28 per cent from a year earlier. The lender’s so-called Alt-A borrowers include self-employed workers or those who are new to Canada and don’t have extensive credit histories. Total mortgage originations fell 23 per cent to $1.85 billion (US$1.38 billion), missing the $2.5 billion estimate of Royal Bank of Canada analyst Geoffrey Kwan. 

Sales activity in Canada’s housing market has slowed, with transactions down 32 per cent in September from a year earlier, as the Bank of Canada’s aggressive rate-hiking campaign ratchets up mortgage costs. Prices have fallen for seven straight months, and are down almost 9 per cent from their peak.

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The market spiral had yet to make its way to lenders’ results, with Canada’s biggest banks all reporting growth in their mortgage books in their most recent earnings. Home Capital’s results provide a window into a segment of borrowers who are considered riskier than those the big banks typically take on, and therefore pay more to borrow.

“The housing market is currently in a period of transition as buyers and sellers adjust to a higher-interest-rate environment,” Home Capital Chief Executive Officer Yousry Bissada said in a statement, adding that the Toronto-based company expects “softer market conditions to persist in the near term.”

The drop in originations contributed to Home Capital’s net income falling 43 per cent to $31 million, or 77 cents a share. Excluding some items, profit was 95 cents a share, matching analysts’ estimates.

Home Capital’s shares fell 4.8 per cent to $25.23 at 10:32 a.m. in Toronto, bringing their decline this year to 35 per cent. That’s the fourth-worst performance in the 29-company S&P/TSX Financials Index. 

Despite the market turmoil, Home Capital’s borrowers have continued to make payments on their mortgages. Net non-performing loans accounted for 0.16 per cent of gross loans last quarter. That compares with 0.15 per cent a year earlier and 0.47 per cent in the same period in 2020.

-Bloomberg

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 expected to raise interest rates on Wednesday as recession fears grow

Even as warnings about a potential recession grow louder, the Bank of Canada is expected to announce another hefty interest rate hike on Wednesday, edging the bank closer to the end of one of the fastest monetary policy tightening cycles in its history.  

RBC senior economist Nathan Janzen says it’s a coin toss between the Bank of Canada choosing to raise its key interest rate by half a percentage point or three-quarters of a percentage point, though RBC is leaning toward the smaller increase. 

“It’s pretty clear that more aggressive interest rate hikes are still warranted,” Janzen said. 

Wednesday’s announcement would make it the sixth consecutive time the Bank of Canada raises interest rates this year in response to decades-high inflation. It also comes amid growing fears that a recession is looming. 

Last week, Finance Minister Chrystia Freeland shifted her tone on the economy from her usual praises of Canada’s strong pandemic economic recovery. She warned tough times are ahead for Canadians. 

“Mortgage payments will rise. Business will no longer be booming,” Freeland said. “Our unemployment rate will no longer be at its record low.”

As well as the interest rate decision, the Bank of Canada will also release updated economic projections on Wednesday in its latest quarterly monetary policy report. The central bank’s outlook on inflation will be key to its plans for any additional rate hikes to come.

Since March, the Bank of Canada has raised its key interest rate from 0.25 to 3.25 per cent, feeding into higher borrowing costs for Canadians and businesses.

And although inflation has been slowing in recent months thanks to tumbling gas prices, the central bank has made it clear it doesn’t believe its job is done just yet.   

“Simply put, there is more to be done,” Bank of Canada governor Tiff Macklem said during a speech in Halifax on Oct. 6.  

As the Bank of Canada raises interest rates to bring inflation back to its two per cent target, officials at the central bank have expressed concern about how high inflation still is and its impact on consumer and business expectations for future inflation.  

In September, the annual inflation rate slowed to 6.9 per cent, though the bank’s preferred core measures of inflation, which tend to be less volatile, were unchanged from August. 

Grocery prices also continued to climb, with the cost of food up a staggering 11.4 per cent compared with a year ago.

There is some good news for the Bank of Canada on the inflation expectations front. Its recent business outlook survey showed businesses expect wages and prices to rise more slowly as their overall inflation expectations have eased. 

The good news, however, won’t be enough to dissuade the bank from another sizable rate hike, Janzen said.  

“There are some indicators that we’re past peak inflation rates. It’s just those inflation rates are still too high, currently, and still way too broad right now to prevent additional interest rate increases,” Janzen said.  

Most commercial banks expect one more interest rate hike after October before the bank hits pause on one of its most aggressive rate-hiking cycles in history.  

The effect of these rate hikes is expected to be felt more broadly in the economy next year as Canadians and businesses adjust their spending.  

While there is some division among economists on how severe the impending economic slowdown will be, many economists estimate the chances of a recession have grown.  

Recent surveys from the Bank of Canada reveal most Canadians and businesses also believe a recession is on the way. 

However, many economists have highlighted that Canada’s tight labour market might serve as a buffer during an economic downturn. In September, the unemployment rate was 5.2 per cent, which is considered to be quite low. 

Although the Bank of Canada has previously spoken about aiming for a “soft landing,” where inflation comes down without triggering a serious economic slowdown, Macklem said in recent weeks that the primary goal of the bank is to restore price stability.  

That commitment has sparked worries in labour groups, which have come out against the aggressive rate-hiking path over concerns about the potential impact of a recession on employment.  

A new report by the Centre for Future Work in collaboration with the Canadian Labour Congress is calling on the Bank of Canada to pause its rate hikes until it can assess the impact of previous interest rate increases on the economy.  

“After three years of dealing with both the health and the economic consequences of an unprecedented pandemic, the last thing Canadians can tolerate is another recession,” the report by Jim Stanford reads.  

Stanford, an economist and the director of the Centre for Future Work, makes the case in the report for a different approach to addressing high inflation.  

Instead of continuing along the path of higher interest rates, Stanford recommends the Bank of Canada balance its goal of restoring low and stable inflation with promoting economic growth and maintaining employment.  

In the report, Stanford also calls on the federal government to play a more active role in fighting inflation by exploring options such as tax increases on high-income earners and windfall taxes on profitable corporations.  

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

Canadian home sales fall to lowest level in five years

Canadian home sales fell to the lowest in more than five years in April, as tougher mortgage qualification rules deterred buyers.

The number of homes sold last month declined 2.9 per cent from March, the Canadian Real Estate Association said Tuesday from Ottawa. Declines were recorded in about 60 per cent of cities tracked including Vancouver, Calgary, Toronto and Montreal.

It was a disappointing start to the busy spring selling season for realtors that suggests markets are still struggling with tougher rules that require borrowers to prove they can afford to cope with higher interest rates. Policy makers made the changes along with other steps, such as foreign buyers taxes, to put the brakes on a surge in price gains last year that some fear could be a danger to the financial system.

The drop in April is the third monthly decline this year, with sales down over 20 per cent since December. The new mortgage qualification rules kicked on Jan. 1.

“This year’s new stress test has lowered sales activity and destabilized market balance for housing markets in Alberta, Saskatchewan and Newfoundland,” CREA economist Gregory Klump wrote in the report. “This is exactly the type of collateral damage that CREA warned the government about.”

Even with the drop in sales, prices are still holding up. The benchmark index climbed 0.6 per cent on the month, and is up 1.5 per cent from a year ago.

The number of new homes listed for sale also declined 4.8 per cent in April.

-Bloomberg News

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

March home sales plunge 22.7%, with national average price sliding 10.4%: CREA

The national average price for all types of residential property was about $491,000, with the Vancouver and Toronto markets causing most of the drag

The number of Canadian homes sold in March plunged 23 per cent and the national average price was down 10 per cent from the same month last year amid double-digit plunges in most housing markets across the country, according to the latest monthly sales data released Friday.

The Canadian Real Estate Association said the level of sales activity marked a four-year low for the month of March and was seven per cent below the 10-year average. Still, national home sales were up from the previous month by 1.3 per cent, according to CREA’s latest statistics.

The drop in home sales comes after several government policy measures were implemented to cool the country’s hot housing market. Last March, national home sales activity had reached an all-time record for that month, according to CREA.

Recent changes to mortgage regulations known as B-20 — which make it harder for homebuyers to qualify for uninsured mortgages — are fuelling demand for lower-priced homes, while shrinking the pool of qualified buyers for higher-priced homes, said Gregory Klump, CREA’s chief economist.

“Given their limited supply, the shift of demand into lower price segments is causing those sale prices to climb,” he said in a statement. “As a result, ‘affordably priced’ homes are becoming less affordable while mortgage financing for higher priced homes remains out of reach of many aspiring move-up home buyers.”

Apartment units posted the largest year-on-year price gains in March, up 17.8 per cent, followed by townhouse/row units at 9.4 per cent. One-storey single family homes saw price gains in March of just 1.3 per cent, and two-storey single family home prices were down two per cent from a year ago.

As of Jan. 1, homebuyers with a down payment larger than 20 per cent seeking a mortgage from a federally regulated lender are now subject to a financial stress test. These borrowers now have to prove that they can service their uninsured mortgage at a qualifying rate of the greater of the contractual mortgage rate plus two percentage point or the five-year benchmark rate published by the Bank of Canada.

The new policy reduces the maximum amount buyers will be able to borrow to buy a home. An existing stress test already requires those with insured mortgages to qualify at the Bank of Canada benchmark five-year mortgage rule.

In turn, home sales activity was pulled forward to the end of 2017 as home buyers tried to lock in a mortgage before the new rules took effect.

Sales in the first quarter slid to their lowest quarterly level since the first three months of 2014.

Overall, the national average price for all types of residential property slipped to about $491,000, down 10.4 per cent from March of last year — with the Vancouver and Toronto markets causing most of the drag.

Excluding Canada’s two most expensive real estate markets, the national average price would be $383,000 — a decline of two per cent from March 2017.

March marked the third consecutive double-digit decline compared with the comparable month last year, when prices in the Greater Toronto Area soared to record highs.

CREA said activity was below year-ago levels in more than 80 per cent of all local markets, in all major urban centres except for Montreal and Ottawa, with the vast majority of year-over-year declines well into double digits.

Markets are likely to remain under pressure from the recent B-20 regulations, higher mortgage rates, and provincial regulations in some regions, TD’s senior economist Michael Dolega said in a research note.

“However, lower-priced markets where affordability is good should generally outperform in the current environment.”

-Calgary Herald