June Monthly Update
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Calgary sets new April record as benchmark price hits $550,800
The Calgary Real Estate Board says the city set a new April record last month as the benchmark price of a home sold reached $550,800.
The Alberta board says the price amounts to a two per cent increase from March and a 1.19 per cent increase from a year ago.
The increase in the benchmark price came as the actual average price of a home sold in the city last month was $549,524, a roughly three per cent rise from a year ago.
The board says the number of sales tumbled almost 21 per cent to 2,690 over the same period, leaving the market with tighter conditions than were seen earlier in the year and when compared with April.
New listings fell nearly 32 per cent since last April to 3,133.
While sales activity is at a level the board expected, Ann-Marie Lurie, the Calgary board’s chief economist, says the steeper pullback in new listings has ensured that supply levels remain low.
“The limited supply choice is causing more buyers to place offers above the list price, contributing to the stronger than expected gains in home prices,” Lurie said in a statement.
-Canadian Press
Tax-Free First Home Savings Account is launching: Here are the basics
Canadians could soon get some assistance when it comes to buying a home when the federal government’s Tax-Free First Home Savings Account (FHSA) launches on April 1.
The program was announced in the 2022 federal budget and is aimed at helping first-time homebuyers jump into Canada’s pricey housing market.
Here’s what you need to know about the savings vehicle that’s set to launch on Saturday.
WHAT’S A FHSA?
The FHSA is a mix between a Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA), but it’s specifically geared towards saving for a house.
Contributions to an account would be tax-deductible and withdrawals to buy a home would be non-taxable.
In order to qualify for an account, an individual must be a Canadian resident between the ages of 18 to 71 and a first-time homebuyer. In some provinces where the legal age to enter a contract is 19, residents will have to wait until that age to open an account.
If you end up becoming a non-resident of Canada after you’ve already opened a FHSA, you can participate normally in contributions; however, you cannot make a withdrawal to buy or build a home while you’re not a Canadian resident.
There will be an $8,000 annual contribution limit, but unused portions of a yearly contribution can be carried forward into the next year. The lifetime FHSA limit is $40,000.
The account can remain open until the 15th anniversary of opening it, until the person turns 71, or the year following a person’s first qualifying withdrawal of their FHSA, whichever comes first.
INVESTMENTS AND WITHDRAWALS
Canadians can have the same kind of investments as a TFSA, in their First Home Savings Account. This means you can hold assets such as publicly traded securities, mutual funds and bonds.
However, when it comes time to withdrawing funds from the FHSA, there are a few requirements that must be met.
The property the funds are being used to purchase has to be in Canada, the taxpayer has to intend on living in that house as their principal residence and they need to have a written agreement to buy or build a qualifying home before Oct. 1 of the year following the withdrawal.
It’s worth noting that anyone who has funds in both a FHSA and the Home Buyers’ Plan wouldn’t be permitted to make withdrawals from both accounts for the same home purchase.
If you end up transferring more than your FHSA contribution room for that year, you will generally have to pay a one per cent tax per month on the highest excess amount in that month.
The federal government’s website said Canadians can remove excess FHSA amounts by: “Making a withdrawal of a designated amount from your FHSAs (designated withdrawal), or making a direct transfer of a designated amount from your FHSAs to your RRSPs or RRIFs (designated transfer), or making a taxable withdrawal from your FHSA, or any amounts deemed to be included in income if the account loses its status as an FHSA.”
TAX SEASON
While we are in the middle of tax season, Canadians should take note that contributions to your FHSA during the first 60 days of the year are not deductible on the previous year’s income tax return.
The federal government’s website added that “You also cannot claim a tax deduction for any FHSA contributions that you make after your first qualifying withdrawal.”
While contributions to a FHSA are usually deductible, if Canadians are planning to transfer from their RRSP to the housing account, it will not be deductible.
ENOUGH FOR A DOWN PAYMENT?
Tim Cestnick, co-founder and CEO of Our Family Office, said the FHSA was a great idea from the federal government, but he doesn’t know how much it will help the average Canadian buying a home.
“Forty-thousand dollars is not going to be enough to really act as a down payment in most cases,” Cestnick said in a phone interview last August.
“Most of the time you’re going to need to put down 10 per cent and there’s not too many homes that you can buy for $400,000 in Canada right now, it’s certainly in the major cities like Toronto and Vancouver, where it’s going to be tough to save enough for a full down payment.”
However, Cestnick said all first-time homebuyers should think of setting up an account, regardless if they end up using it.
“I think it’s a no brainer for first-time homebuyers to set up the account because it doesn’t hurt you in any way,” Cestnick said.
“You can pull money out tax-free if you buy a home, if you don’t, that money goes into your RRSP and those are both good options.”
-Hilary Punchard, BNN Bloomberg
January Preferred Client
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.
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
TD Bank drops 5-year variable mortgage rate as competition among big lenders heats up
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.
-Calgary Herald
CALGARY REAL ESTATE NEWS 