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Calgary Real Estate 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

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

A 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

Calgary Real Estate News

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)

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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)

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

-CMHC

Calgary Real Estate News

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

Calgary Real Estate News

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

Calgary Real Estate News

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

Calgary Real Estate News

Home sales fall nearly 17% in February from a year ago: CREA

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.

-Globe & Mail

Calgary Real Estate News

Condominium Property act. New changes April 1.18

RECA News

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.

Real Estate Council of Alberta

T: 1-888-425-2754

F: (403) 228-3065

communications@reca.ca

www.reca.ca

Calgary Real Estate News

What Does Donald Trump Mean For Canada’s Housing Market?

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.

Canada has been growing increasingly reliant on its housing market for economic growth in recent years, so a slowdown could take a real bite out of employment, and that, in turn, could mean a broader economic downturn.

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.

– Daniel Tencer  Senior Business Editor, HuffPost Canada

Calgary Real Estate News

High real estate prices are sparking a surge in unorthodox housing – and new ways to think about insuring a home

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.

-Calgary Herald