This weeks top stories include how mortgage interest rate wars are on their way back with the big five banks, how new regulations for China’s housing market could be good news for the Canadian real estate market, how home sales in Toronto were down 15% from the same time last year, how Finance Minister Jim Flaherty stated that low mortgage interest rates could hurt the economy and how the Bank of Canada left it’s overnight lending rate unchanged yet again.
It seems that the battle of the spring market is already upon us as mortgage lenders continue to reduce mortgage interest rates to obtain their piece of the pie. Currently, the spring market is scheduled to be a slow one and with lower real estate sales, comes less mortgage business. This leads many banks to compete for the same business through lower mortgage interest rates.
BMO struck first on Friday by reducing their five year fixed rate mortgage to 2.99% from 3.09%. This in no way affects us as a brokerage as we are currently offering 2.89% for the same five year fixed rate term with more flexible options than BMO. Gregory Klump, chief economist with the Canadian Real Estate Association (CREA) was noted as saying, “Perhaps there is pressure to lower rates. It remains to be seen how much the real estate market is going to slow.” Many analysts are predicting a housing market correction in the near future but as of recently home prices have remained firm with sales declining from last years numbers.
CREA noted that prices were up 2% year over year in the month of January with sales down 5.2% during the same period. When looking at the numbers on a seasonally adjusted basis, sales were up from December to January by 1.3%. There are talks that the Bank of Canada (BoC) may further reduce the overnight lending rate. Mr. Klump tuned in by saying, “I don’t think low interest rates change their mind on whether they are going to buy or no. What it does change is how much property they can afford. The most important thing at this point in the cycle is how confident consumers are of economic prospects going forward.”
BMO may get more business through their new low mortgage interest rate but the mortgage product comes with many restrictions, such as not being able to break the mortgage and transfer it to another lender down the road. It also only includes a prepayment option of 10%. I think BMO needs to explain that this is a limited product that basically falls into the “no frills mortgage” category. The concern should now be transparency of what’s being offered. The other concern is to ensure that the Finance Minister, Jim Flaherty, does not get upset over the low rates and add another round of tightening to the current mortgage regulations. What do you think? Please comment below.
What’s bad for China’s housing market could turn out to be a positive for Canada’s struggling condo market. There is currently a crackdown on real estate ownership in China, which may lead many to move money abroad and the number one hot spot for real estate is still considered to be Canada.
Benjamin Tal, deputy chief economist for CIBC World Markets commented, “Absolutely it will have a positive impact on the condo sector. If it’s softening now, it will soften less rapidly than otherwise. This is a positive move because some of the money will find its way to Canada.” China recently implemented stricter guidelines for purchasing property, which include an increase in downpayment requirements on second home mortgages and stricter rules on implementing a 20% tax on capital gains for sales of properties.
Vancouver and Toronto will most likely see majority of the foreign investors flock to these area’s as they have always been the forefront for any foreign investor. It’s unfortunate that foreign investment data has not been tracked thus far and that there is no current way of tracking any future foreign investment data. Ben Myers, vice president of Urbanation Inc., which researches the Toronto condo sector commented, “A lot of foreign investment comes through a subsidiary so there is no way to figure it exactly out.”
Urbanation Inc. estimates that only 10% to 15% of investors are foreign investors and that only 5% of those people actually have their own names directly on the agreement of purchase and sale. Regardless of the numbers, any additional buyers would be an asset to Canada’s dwindling housing market numbers. Realtor Brad Lamb feels that every time there is a crackdown abroad, it’s always good news for the Canadian housing market.
Brad commented on the matter saying, “Foreign buyers are trying to move their money to a safer spot for capital preservation. We see that a lot from more politically risky countries. They are looking for hard assets and the condo sector has a track record of increasing prices.” Urbanation Inc. feels the opposite and suggested that tighter rules in China would be bad for the Canadian real estate market if the government goes further and restricts money leaving the country, which is a statement that rings true with many. What do you think? Is the tightening of regulations in China going to be good news or bad news for the Canadian housing market? Please comment below.
The number of homes sold in the month of February in the Toronto area were down roughly 15% from the same period last year. The news is not unexpected as sales have been dwindling since late last year. The Greater Toronto Area Realtors Association noted that there were only 5,759 sales through the Toronto Multiple Listing Service (MLS) in the month of February.
Sales numbers in February of 2012 reached 6,809 units and only had one extra day in the month. Lower sales volumes is expected to be a continuing trend in Toronto real estate well into the end of this year. The unexpected number was that prices continue to go up despite sales numbers dropping. The average transaction price last month in the Greater Toronto Area (GTA) was $510,580, which was up slightly from $510,249 last year during the same period.
The rise in prices while sales flat line has been witnessed before during previous housing market corrections. Prices need to come down but sellers are unable to justify selling their homes for less. This usually leads to a few months of a stalemate where houses stay on the market for longer until the price is eventually brought down. What do you think? Are home prices currently too high? Does the market require a correction? Please comment below.
Read the full article here
Finance Minister Jim Flaherty is closely watching banks and the mortgage interest rates that they are offering. He is trying to get the banks to avoid the heated competition that they had last year for more market share where the banks lowered mortgage interest rates and went into a rate war for more business.
Mr. Flaherty chimed in by saying, “As for decisions by individual banks, as I have said repeatedly before, my expectation is the banks will engage in prudent lending. Not the type of race to the bottom practices that led to the mortgage crisis in the United States.” The finance minister has been tightening mortgage guidelines over the past few years, on four separate occasions. The main move was to lower mortgage amortization lengths, where the minister reduced mortgage amortizations from 40 years back to 35 years, then back to 30 years and now currently to 25 years.
This has effectively raised mortgage interest rates by 1% without actually raising the interest rates. Lower amortization periods mean that the consumer has less time to pay back the mortgage through principal and interest payments. This means that the monthly cost of a mortgage increased while interest rates stayed unchanged. The other thing this did was allow buyers to qualify for less money when taking a mortgage. Flaherty’s number one agenda when it comes to the housing market is to try and cool over borrowing not to ensure that we have the best mortgage rates available.
Gregory Klump, chief economist with the Canadian Real Estate Association (CREA) noted that the spreads on the five year fixed rate mortgage is quite large, allowing the banks some wiggle room if they decide to lower mortgage interest rates. BMO has started the war again by kicking off a new campaign with a five year fixed rate mortgage of 2.99% (this is a limited, no frill product). This in no way affects us as a brokerage as we are currently offering 2.84% for the exact same mortgage or 2.89% for a fully flexible mortgage with significant prepayment options. If you are looking for the best rate, please visit us at www.safemortgages.ca or contact us directly at 416.890.5228.
The Bank of Canada (BoC) continued it’s current rate setting policy, that mimicked the last two years, and kept the overnight lending rate unchanged again this week on Wednesday. The BoC continues to point to a weak economy as the main contributory factor to the reason as to why it continues to leave the trend setting rate unchanged.
The difference in this week’s rate setting policy meeting, compared to previous meetings, is that the BoC made note about the weak economy and have considered holding the trend setting rate for an extended period of time. This news still lacks the date that the monetary stimulus rate will come to an end, which is what most analysts and economists were looking for.
The BoC commented, “With continued slack in the Canadian economy, the muted outlook for inflation, and the more constructive evolution of imbalances in the household sector, the considerable monetary stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required. Inflation is expected to remain low in the near term before rising gradually to reach 1% over the projected horizon as the economy returns to full capacity and inflation expectation remain well-anchored.” What do you think of the comments?
Please note that I will be away on business for the next three weeks and the latest in mortgage news will return on April 5, 2013
Check out our great collection of Mortgage Tools. Calculators, Home Owners Checklists and more!
The most comprehensive Mortgage Glossary online bar none.