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.
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.
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
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.
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.
- 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.
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.
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.
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
TD Bank is joining a rival bank in offering a highly discounted variable mortgage rate as competition among Canada’s biggest lenders heats up.
The Toronto-based bank said Tuesday it’s lowering its five-year variable closed rate to 2.45 per cent, or 1.15 per cent lower than its TD Mortgage Prime rate, until May 31.
TD’s special rate follows last week’s move by the Bank of Montreal, which discounted its variable mortgage rate to 2.45 per cent until the end of May.
Canada’s lenders often offer special spring mortgage rates as homebuying activity picks up, but Robert McLister — founder of rate comparison website RateSpy.com — said last week that BMO’s special discounted variable rate was the biggest widely advertised discount ever by a Big Six Canadian bank.
TD’s discounted rate on Tuesday brings its variable mortgage rate offer in line with BMO’s.
“TD is not lying down,” McLister said Tuesday. “Mortgage growth is the lowest since 2001, you’ve got interest rates going up, and less people getting mortgages because of that… They have the ability to match this rate and still make money.”
TD spokeswoman Julie Bellissimo says its special five-year variable rate applies to new and renewed mortgages, as well as the variable rate term portion of certain TD home equity lines of credit.
“We are confident this is a strong offer for new and renewing customers, while ensuring we remain competitive in a changing environment,” Bellissimo said in an emailed statement.
The moves come amid slowing mortgage growth. The Canadian Real Estate Association said Tuesday that national home sales volume sank to the lowest level in more than five years in April, falling by 13.9 per cent from the same month last year. The national average sale price decreased by 11.3 per cent year-over-year.
Home sales have slowed due to various factors, including measures introduced by the Ontario and B.C. governments to cool the housing market, such as taxes on non-resident buyers.
Other headwinds for mortgage growth include higher interest rates and a new financial stress test that makes it more difficult for would-be homebuyers to qualify with federally regulated lenders, such as the banks.
As of Jan. 1, buyers who don’t need mortgage insurance must prove they can make payments at a qualifying rate of the greater of two percentage points higher than the contractual mortgage rate or the central bank’s five-year benchmark rate. An existing stress test also stipulates that homebuyers with less than a 20 per cent down payment seeking an insured mortgage must qualify at the central bank’s benchmark five-year mortgage rate.
The tighter lending rules are making it harder for homebuyers to qualify for uninsured mortgages, and shrinking the pool of qualified buyers for higher-priced homes, CREA’s chief economist Gregory Klump said in April.
Meanwhile, Canada’s largest lenders all raised their benchmark posted five-year fixed mortgage rates in recent weeks as government bond yields increased, signalling a rise in borrowing costs.
In turn, the central bank’s five year benchmark qualifying rate — which is calculated using the posted rates at the Big Six banks — increased last week to 5.34 per cent. This qualifying rate is used in stress tests for both insured and uninsured mortgages, and an increase means that the bar is now even higher for borrowers to qualify.
As well, since July, the Bank of Canada has raised interest rates three times to 1.25 per cent, putting added pressure on consumers. But a rising interest rate environment also means that the margins — or profit made on loans — on mortgages for banks will improve if interest rates rise. Rising interest rates also drive up demand for fixed-rate mortgages, and banks may discount variable mortgage rates in an effort to balance the books, according to McLister.
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.
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.
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.
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.
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)
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)
Source: Statistics Canada, Canadian Income Survey 2012 – 2016, Survey of Labour and Income Dynamics 2006 – 2011
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.
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.