This weeks top stories include how the changes to the mortgage lending rules could cause harm to the greater economy, how the developers of the Trump Tower Hotel in Toronto are caught up in the midst of a legal battle, how U.S. housing is showing signs of strength and how home price gains across Canada have begun to slow.
Mortgage brokers are looking to meet with federal finance officials this December to try and lobby to ease changes to the new mortgage lending guidelines. Brokers are stating that the new changes to the mortgage lending rules have taken 17% of potential buyers out of the market and is poised to cause substantial harm to Canada’s housing market.
New mortgage rules that took affect in July have caused housing sales to decline 8%, according to the Canadian Association of Accredited Mortgage Professionals (CAAMP). This was the fourth set of tightening of mortgage rules by finance minister Jim Flaherty. Economist Will Dunning commented, “The housing resale numbers behave like a canary in the mine for us.” This comment was in direct correlation to the latest rule change that reduced the maximum amortization period from 30 years down to 25 years. The new policy doesn’t just effect the housing market but job creation and the economy as well.
When looking at high ratio mortgages approved in 2010, the mortgages where there was less than a 20% down payment, CAAMP determined that 17% of those that qualified for mortgages could not do so under the new mortgage lending rules and that 11% would not qualify just under the changes to the maximum amortization period. The changes not only hurt first time home buyers looking to get into the housing market but have also stopped many from moving into new homes as eligible buyers are harder to come by to purchase homes currently for sale.
2012 will be known as the year of the fixed rate mortgage with 79% of mortgagee’s now locked into fixed term mortgages with fixed interest rates. 13% of those that fixed their mortgage interest rate, locked in this year. 68% of the approved mortgages from last year have amortizations less than 25 years and 32% have chosen to increase their monthly payments to try and pay off their mortgages sooner. This leads many to believe that consumers have been listening to warnings about run away debt and getting household consumer debt under control. What do you think? Please comment below.
Toronto’s Trump International Hotel and Tower is in the limelight again but not for the right reasons. It seems that the developers of the Trump Tower have launched a lawsuit against seven investors to try and force them to close on deals for condo-hotel suites that they are claiming have not turned out to be what they had expected. Talon International Inc. was in charge of developing the Trump Tower located at Bay Street and Adelaide Street in Toronto.
A slew of purchasers of the suites in the 65 storey luxury hotel are now working on obtaining their deposits and trying to avoid final payments that average $500,000. Other buyers that don’t want to go the legal route are stuck with units that are unable to sell and unable to secure mortgages against with values that banks find over inflated. Closing is currently scheduled for November 29th of this year but it remains to be seen what the outcome will actually be. Once buyer, a blue collar worker, who borrowed $175,000 down payment from his immigrant parents and owes $750,000 at the end of this month commented, “One mortgage company asked me, ‘How could I give you a mortgage on a property that is losing money every single day? It’s very scary.”
Many thought that the Trump Tower was a golden opportunity with the Toronto condo market in a boom but that all changed in February when the doors to the tower opened and buyers found that maintenance fee’s, property taxes and other costs had significantly increased from Talons previous projections. Costs rose 40% with property taxes currently at $30,000 a year for most units. These costs were meant to be offset by hotel revenues but occupancy has only been running between 10% to 50% capacity with rooms only averaging $300 per night instead of the $600 per night projected by Talon.
Based on the new found actual numbers, buyers have notified Talon that they will be rescinding their deals under the clause of “material change” under the Condominium Act. Talon commented, “Purchasers that entered into agreements of purchase and sale with Talon are not amateurs. The purchasers made these commercial investments in the light of day and presumably on the advice of their legal counsel. We have full confidence in the court’s wisdom to interpret and enforce the terms and conditions of the agreements that were entered into by those few purchasers which have chosen to resile from their binding obligations to Talon.” What do you think of Talons remarks? Please comment below.
The U.S. housing market is showing signs of strength, even though permits for future constructions tumbled. U.S. housing starts reached their highest peak in more than four years in the month of October, according to the Commerce Department. Housing starts were up 3.6% to a seasonally adjusted annual rate of 894,000 units, which is the highest number on record since July of 2008.
Housing starts for the month of September were revised downward to 863,000 units instead of the previously reported 872,000 units. Economist had anticipated that starts would decline to a 840,000 unit rate in September but were pleasantly surprised. The U.S. housing market is showing signs of a recovery after the housing market collapse, which put the economy in the worst recession since the Great Depression. Record low mortgage interest rates and pent up demand are starting to lead consumers back into purchasing homes again as sale prices and building activity continues to rise.
Residential construction has increased 41.9% when compared to October of 2011 and housing starts are now only 40% of their peak mark of 2.27 million units in January of 2006. Home building is also set to contribute to gross domestic product (GDP) growth this year for the U.S., which will be the first time since 2005 that the housing market has had a positive effect on GDP. Confidence amongst home builders has also reached it’s highest level in 6.5 years this month. Leading many to believe that the housing recovery south of the border will continue to gain traction. What do you think? Please comment below.
Canadian home prices declined in the month of October from September as year over year price gains continue to slow. This was the 11th consecutive month that home prices have declined furthering the consensus that the Canadian housing market is cooling. The news was released on Wednesday of this week by the Teranet-National Bank Composite House Price Index.
The index measures price changes for repeat sales of single family homes. The index showed that prices fell 0.2% overall from the previous month. Mazen Issa, Canada Macro Strategist at TD Securities commented, “Today’s report provides additional evidence that macro prudential regulations are helping to slow housing demand and is consistent with last week’s existing-home sales report. With tighter mortgage regulations proving to be effective thus far, the Bank of Canada will have slightly more breathing room to stay on the sidelines and observe how key global events unfold in the very near-term.”
Canadian home prices have been on the rise for some time now. When mixed with low supply, it caused prices to heavily increase and spur fears that a housing market bubble was in the works. The federal government intervened and tightened rules for mortgage lending four times in the past four years. This was aimed at controlling over borrowing by consumers without having to raise interest rates, which could affect the greater economic recovery. The changes to the mortgage rules have been offset by ultra low mortgage interest rates, which are expected to stay low well into next year. What do you think of the decline in home prices? Please comment below.
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