This week’s top stories include how cottage sales have begun to increase, how Canada Mortgage & Housing Corporation has advised that the housing market will cool off in the near future, how Canada’s housing boom is expected to come to an end, how alternative lenders like Home Trust and Equitable Trust are preventing the market from cooling, how the federal government has tightened mortgage lending guidelines again and how CIBC’s FirstLine Mortgages is winding down operations without a buyer.
It seems that the cottage sales are beginning to make a comeback this year after four years of slowing according to the latest report on the cottage market that was released by Re/Max this week on Monday. Sales are up 70% overall across Canada but prices continue to remain soft or even depressed.
The numbers show that most Canadians aren’t willing to spend more than $400,000 on a cottage property when looking at an overall picture. This is not the case in the high end luxury Muskoka market where there is demand for properties valued at $1 million or higher as prices continue to fall to more reasonable levels in the area. Michael Polzer, executive vice president of Re/Max Ontario and Atlantic Canada commented, “Renewed consumer confidence is the true driver,” of what is seen as hopeful signs of activity in a market that has been sluggish since the Great Recession“
One of the largest factors attracting buyers is the continued low interest rates being offered by mortgage brokers and banks alike. There may be some shortages of properties in the lower price ranges but activity continues to be healthy and supply is abundant as the boomer market begins to slow with less boomers buying and more selling properties to free up cash. This is leading to a new generation of younger buyers finding their way into the recreational property market. What do you think of the cottage market? Please comment below.
Canada Mortgage & Housing Corporation (CMHC) stated this week that it expects both the new and existing home sales markets to slow in the up and coming months after getting off to a solid start this year. CMHC had raised its expectations for housing starts but feels that the market will cool going in the second half of the year.
CMHC released its second quarter housing market outlook this week and noted that housing starts will range between 182,300 to 220,600 units this year. That’s a raise in the forecast from February’s numbers of 164,000 to 212,700 starts this year. CMHC deputy chief economist Mathieu Laberge stated that condo construction aided in the rise in housing starts for the beginning of the year but also stated that the number varies quite drastically from month to month.
He went further by commenting, “Although economic conditions are expected to remain supportive of housing demand, housing starts activity is expected to moderate as 2012 progresses. Similarly, balanced market conditions in the existing home market will result in modest house price gains through to the end of the year.” The outlook also noted that the average price on the Multiple Listing Service (MLS) network will range between $341,100 and $406,700 this year, with a slight rise next year. What do you think of the modest price increase? Please comment below.
According to the latest poll by Reuters, the Canadian housing market is expected to come to standstill next year. It will be attributed to price declines in the condominium markets of Toronto and Vancouver. This is also expected to raise the risk of a broader economic slowdown across the country.
Home prices are expected to increase by 2% this year and stall next year with a possible increase of only 0.5%. Home prices have increased 37% since January of 2009 according to the Canadian Real Estate Association Index. Mark Hopkins of Moody’s Analytics stated, “Home prices are overvalued by slightly under 10% nationwide (and) most of the overvaluation is concentrated in Toronto and Vancouver.”
Home prices in Toronto are expected to increase 6.6% this year after witnessing roughly a 10% increase last year. That is expected to turn into a decline of 0.2% next year and will be the first decline on record since 2008. Vancouver is expected to fall a further 1.6% this year and another 2.5% by 2013. These numbers are analysts expectations for the near future and are no means in stone. What do you think of the expected declines? Please comment below.
The federal government has been working with the regulators to try and control household debt and cool the housing market without raising interest rates and affecting borrowers enough to put them under water. It seems that low interest rates and excessive lending with alternative lenders are preventing the market from cooling.
It seems that even with new regulations to deal with concerns of the housing market overheating is leading to a growth in business at alternative lenders like Home Capital Group and Equitable Trust. Stephen Boland, an analyst at GMP Securities stated, “Both Equitable Trust and Home Capital are benefiting from the banks tightening underwriting rules.” Some of the shift can be witnessed by the latest numbers provided by Canada’s six largest banks.
For the second quarter of this year, the big banks reported a quarter over quarter loan growth of only 1.2%, which is extremely low compared to the 1.8% pace the banks have averaged each year in the second quarter since 2009. The government has taken numerous steps to cool the market this year and continues to warn of high levels of household debt that continues to leave the Canadian economy vulnerable to domestic and international shocks. Even with OSFI’s changes in regulations to tame the housing bubble, there is no assurance that they will succeed. What do you think? Please comment below.
The Harper government announced yesterday that they are tightening mortgage lending rules and guidelines again. Although this has been in the making for quite some time, it comes as a complete shock with no hints inside the industry that they would actually make the move.
The federal government has decided that it will reduce the maximum amortization, the time it takes to pay off the mortgage, from 30 years down to 25 years on all government insured mortgages. This means anyone putting less than a 20% down payment on their purchase will be effected. The central bank has been concerned about the overheated housing market as well as unsustainable household debt levels to income.
This is the third move that the Finance Minister has made in the past four years to reduce the amortization period on fully insured loans through Canada Mortgage & Housing Corporation (CMHC). In 2008, 40 year amortization was readily available to anyone with a minimum 5% down payment and closing costs to purchase a home. In fact, at that time, you could obtain a mortgage with 0% down and still obtain a 40 year amortization if you wanted it.
The news has its ups and downs. On the up side, consumers will be paying less in total interest on the life of the mortgage. The down side is that the reduction in amortization will make for larger monthly payments on mortgages. The government also decided that you can no longer refinance your home, or borrow equity against it, up to 85% of the value. The new rules state that you can only go as high as 80% now.
This will take away some leverage from consumers, as you cannot pull as much as before to refinance your debts, credit cards or loans. The government also stated that CMHC will no longer back any homes that are purchased that are over $1 million. Some other note worthy changes are that Home Equity Lines of Credit (HELOC’s) will be only available up to 65% of the value of your home, rather than the 80% that is offered now.
Mortgage companies also can re-calculate the value of your home at refinancing and lend against the new value if the lender deems necessary. The government has stated that the new rules will take effect on July 9, 2012. The concern began with the condo market in Vancouver and Toronto and now there is concern that it will spill into the housing market. What do you think of these latest changes? Please comment below.
It seems the FirstLine Mortgages brand is coming to an end as CIBC fails to sell the brand. This is the first time in recent history that a bank has not been able to find a buyer for one of its assets. This means that one of Canada’s largest mortgage broker companies will be winding down.
A CIBC spokesman commented, “We conducted a review of our strategic options concerning FirstLine Mortgages, including a potential sale of the origination platform while keeping the portfolio and focusing on mortgage renewals through the CIBC branch network. We determined that an acceptable deal to sell FirstLine’s mortgage origination platform could not be reached and concluded that it is preferable to cease originations from this brand.”
FirstLine Mortgages will stop issuing mortgages at the end of July but will continue to service current mortgages through the CIBC branch network. Rob McLister, editor of Canadian Mortgage Trends commented, “It’s a bad day for the mortgage broker market. Anytime you have the former number one brand shutting its door, it’s an unfortunate situation. Before the credit crisis, it was a huge, iconic brand.”
CIBC was further noted as saying, “Once this process is complete, we plan to increase renewals into our CIBC brand from the FirstLine platform over time. Benefits of this will include higher net interest margins and deeper relationships as these clients enter into CIBC branded channels.” This may mean that another bank will no longer service the broker channel as Royal Bank and Bank of Montreal are currently not working with mortgage brokers. What do you think? Do you have a mortgage with FirstLine? Please comment below.
Read the full article here
Check out our great collection of Mortgage Tools. Calculators, Home Owners Checklists and more!
The most comprehensive Mortgage Glossary online bar none.