This week’s top stories include how the Canadian real estate market was noted to be cooling before the regulation changes, how home prices in the U.S. have risen for the third consecutive month, how consumer confidence in Canada has fallen drastically, how the changes to the mortgage regulations may be a little too late and how the new mortgage regulations will aide in the slow down of the economy.
As mortgage regulations changed again last week, for the fourth time in the past few years, many analysts and economists are left feeling that there was no need for the changes to the current regulations. The Canadian housing market was already showing signs of cooling before the Finance Minister Jim Flaherty made the announcement of the changes.
CIBC World Markets chief economist Benjamin Tal stated, “They are running a risk, and the risk is that it will push a bit too much. You push too much and you can fall. We are already in a slowing market.” The changes to regulations are based around the risk of the Toronto and Vancouver condo market, which are currently noted as being overvalued but are starting to show signs of weakness. Ottawa decided to push ahead with the changes regardless of the current state of leveling taking place.
The changes include tougher rules on ratio’s for calculating debt servicing costs, shorter amortization periods on mortgages, a $1 million cap on home prices for anyone utilizing government backed mortgage insurance and lower limit for refinancing your mortgage using your home equity. The Canadian Real Estate Association (CREA) stated that the benchmark index for home prices had risen 5.2% in May from the same period last year, showing signs that housing has begun to cool.
More evidence that the condo market in Toronto is slowing are that high rise transactions are 20% below where they were a year ago. Although Mr. Flaherty continues to closely watch the Toronto condo market, the changes are more focused on Canada as a whole. Mr. Flaherty commented, “I remain concerned about parts of the Canadian residential real estate market, particularly in Toronto but not only in Toronto. So that is why we were intervening once again,” he told reporters. The market could be controlled by a raise in interest rates but this would affect other parts of the Canadian economy so the government chose to tighten regulations further. What do you think? Was it the right move? Please comment below.
U.S. single family home prices seemed to have increased for the third consecutive month in April, leading many to believe that the American housing market is finally gaining some traction. The S&P/Case Shiller composite index of 20 metropolitan cities rose 0.7% on a seasonally adjusted basis and best analysts expectations by 0.3%.
On a non seasonally adjusted basis, things look even rosier as the index was up 1.3%. Only three of the 20 cities in the index witnessed declines in the month of April on a seasonally adjusted basis. David Blitzer, chairman of the index committee at Standard and Poor’s stated, “It has been a long time since we enjoyed such broad based gains. While one month does not make a trend, particularly during seasonally strong buying months, the combination of rising positive monthly index levels and improving annual returns is a good sign.”
When compared to last year, prices are down 1.9% and beat the expectations of a decline of 2.5%, which is an improvement from the 2.6% annual decline witnessed during March of this year. It will be interesting to see what next month’s data holds for the U.S. housing market. What do you think? Will we see another increase in home prices? Please comment below.
A new survey released this week from the Conference Board of Canada states that consumer confidence has dropped significantly with fears about how the Canadian economy will fare in the near future. The Conference Board of Canada says that the index dropped by 6.8 points to 74 in the first weeks of June. This is where the index was in January of this year.
Canadians stated that they were concerned about their finances and job prospects this year. The response on job prospects were the weakest results on record since the beginning of 2009 when the economy was caught in one of the worst recessions in decades. Majority of the confidence that was lost was attributed to Atlantic Canada and Ontario. How do you feel about the current state of our economy? Please comment below.
Last week was the unveiling of new mortgage regulations for Canadian consumers by the federal government. Although the move was meant to affect the Canadian housing market in a positive way, Moody’s Investors Service analysts feel that the changes are coming too late and that a housing correction will come regardless.
The goal was to decrease amortization periods on mortgage loans, which will immediately cool housing sales by increasing the minimum monthly payment on a mortgage loan. Canadian banks are set to benefit from this as consumers will now hold more equity in their homes and will now leave an equity buffer for banks if they have to foreclose on a property.
The analysts did state, “However, the government’s moves may have come too late, owing to the build-up in consumer debt that has already occurred. In addition, slowing growth in household disposable income will be a challenge for consumers trying to pay down their debts.” Previous regulation changes failed to stop Canadian household leverage from increasing so why will the new regulations change it now. The real risk is the ultra low interest rate environment that we have been in for far too long. What do you think? Please comment below.
Canada’s economy is expected to under-perform for the next two years according to TD Bank economists. The recent change to tighten mortgage regulations is expected to make big waves in the economy and will be partially responsible for the slowdown.
TD bank has now stated that Canadian growth will only average a measly 2.1%, which is down a tenth of a point from March’s outlook. It went further to state that growth next year will only average 2%, which is down four tenths of a point from the previous outlook. It may be enough for some modest job creation and possibly reduce the unemployment rate slightly to 7.1% next year from the current rate of 7.3%.
Deteriorating conditions through most of the world have continued to plague Canada and almost every other economy. Europe’s problems and government debts in the rest of the Eurozone have gone on to affect the remainder of the world. China and the United States both continue to miss all analyst expectations. Analysts have commented, “In the case of Europe, they are toying with the possibility of a global financial catastrophe. The good news is that the politicians realize this, so it makes it more likely they will do what is necessary.” What do you think of this mess? Please comment below.
Please note that I will be away for the next two weeks and the latest in mortgage related news will return to you on Friday July 13th, 2012
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