National Real Estate News

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This article appeared on CBC.ca on February 28th, 2014 and was written by Pete Evans.  CMHC Hikes Mortgage Insurance Premiums: Housing Agency Increases Amount Homebuyers Must Pay to Insure Their Loans

CMHC Canadian Mortgage and Housing CorporationCanada’s national housing agency has increased the cost of insuring mortgages for homebuyers who make down payments of less than 20 per cent. Starting in May, the housing agency will charge an average of about 15 per cent more to insure mortgages, CMHC said in a release Friday. Prior to the announcement, the premiums ranged between 0.5 per cent and 2.75 per cent. Under the new rules, they will range from 0.6 per cent to 3.15 per cent.

MAP: House prices across Canada
Ottawa caps mortgages at 25 years

The changes are unlikely to have a major effect on the housing market, but in real-dollar terms, the move makes it incrementally more expensive to buy a home. A heavily leveraged buyer — someone with only five per cent down, and therefore borrowing 95 per cent of the home’s value — would be most affected by the hike.

Under the old system, that borrower would pay an insurance premium of $6,875 to get a $250,000 mortgage. Under the new system, the premium would jump by $1,000. On a typical 25-year mortgage at 3.5 per cent, that person would be paying about $5 more every month. “This is not designed to affect housing market activity,” CMHC vice-president Steven Mennill said.

Mandatory insurance

Homebuyers in Canada are legally required to purchase mortgage insurance if they don’t put down 20 per cent of the price of the home up front. The homeowner pays for the insurance, but the lender is the beneficiary — it covers their losses if the homeowner defaults.

The vast majority of that insurance is sold through CMHC, although some private companies also offer it. Those companies, including Genworth Financial and Canada Guarantee tend to match whatever taxpayer-backed CMHC is charging.

True to form, Genworth did exactly that later on Friday, raising its insurance premiums to match CMHC’s.

“We believe this new pricing is prudent and more reflective of increased regulatory capital requirements,” Genworth chair Brian Hurley said. “These pricing actions are supportive of the long-term safety and stability of the Canadian housing market.”

Genworth shares jumped up by almost five per cent on the TSX following the news, a day after they gained more than three per cent as rumours of what CMHC was planning leaked out. Higher premiums mean more revenue for the insurer, which investors like.

CMHC charges a percentage fee for its insurance policies in the very low single-digits. Those percentages haven’t been raised since the late 1990s, and were in fact lowered from 2003 until 2005.

“The higher premiums reflect CMHC’s higher capital targets” Mennill said in a release. “CMHC’s capital holdings reduce Canadian taxpayers’ exposure to the housing market and contribute to the long-term stability of the financial system.”

The increase will only affect new policies, not mortgages already in existence.

CMHC said the new rules will apply to owner-occupied units and one-to-four-unit rental properties. It will also apply to self-employed owners. “This isn’t going to have a big impact on the mortgage market,” said Kelvin Mangaroo, the president of RateSupermarket.ca. “It’s more about getting their capital reserves in line.”

Considering how strong the housing market has been for the last decade, it’s not surprising that the CMHC has moved to adjust the premiums it charges to insure all that pricey housing stock, he said.

This article appeared on the Globe and Mail on January 21st, 2014 and was written by Tara Perkins.

home for sale sold sign kamloops real estate mls listing kirsten masonFitch Ratings thinks that Canadian home prices will manage to stay flat or dip just a little bit this year, despite its belief that they are 20 per cent too high, because of the strength in the housing market.

The expected decline in the pace of home price growth, coupled with high consumer debts, will likely lead to a rise in mortgage delinquencies, although they will remain at relatively low levels, the rating agency added.
Fitch has been saying for roughly a year that it believes Canadian home prices are overvalued to the tune of 20 per cent. But in a report released Tuesday it suggested that it does not forecast much trouble for the market in 2014, saying that a “correction [is] not yet in sight” for Canada and a number of other countries that it has been concerned about.

While most economists agree that Canadian home prices are currently too high, estimates of the overvaluation range from 5 or 8 per cent to 60 per cent. Policy-makers here are hoping that employment and incomes will rise while home prices flatten out, helping the situation to sort itself out without any sharp drop in prices. But if the housing market keeps up its momentum – which is fuelled in large part by low interest rates – risks will continue to build up in the system. The market staged a surprisingly strong rebound in the middle of 2013, but recently has shown signs that the momentum is petering out: the number of existing homes that changed hands has slipped down month-to-month for three months in a row.

While Fitch expects rising economic growth and supportive government policies to boost mortgage lending in most countries this year, it sees lending volumes softening in Canada because of measures Ottawa has been taking to curb the housing market.

“The Canadian government is exerting a moderating influence on the market, following concerns over the long-term viability of household debt levels and high prices,” it said in the report. “This should lead to muted lending in 2014/15.”

The Canadian Association of Accredited Mortgage Professionals forecasts that mortgage credit will rise by 3.25 per cent this year and by 3 per cent in 2015, compared to an average rate of 8.6 per cent during the past decade. That would bring the total amount of residential mortgage debt that Canadians have outstanding to about $1.29-trillion by the end of 2015.

“While Canadian prices may fall this year, Fitch believes any decline would be slight due to the country’s strong macro-economic trends and cautious lending policies driven by government measures, which are expected to slow lending in 2014,” the rating agency said in its report.

But it added that affordability “is already very stretched” despite record low interest rates, and that if the Bank of Canada raises interest rates later this year that will put additional stress on the market.

While many economists don’t expect the central bank to raise rates until the middle of 2015 or even later, Fitch says it expects them to go up towards the end of 2014.

“Fitch expects mortgage rates to remain mostly steady initially in 2014, though there is likely going to be more upward pressure nearing the end of the year from both U.S. policy and Canada’s internal government,” it said.

Mortgage prices tend to follow changes in five-year government bond yields (because those impact the price that banks pay to obtain money to lend out), and Canadian bond yields tend to follow U.S. bond yields, meaning that Canadian mortgage rates depend in large part on the outlook for the U.S. economy.

Royal Bank of Canada, this country’s largest mortgage lender, cut a number of its fixed mortgage rates by 10 basis points this past weekend. Lenders such as Home Trust and First National Financial LP have also decreased their rates this month.

“Primarily due to rising home prices, household debt-to-disposable income ratios have risen dramatically over the past decade, despite a large drop in mortgage rates over the same period,” Fitch noted.

It expects the ratios to stabilize this year as home price growth slows or reverses. “Nearing the end of 2014, there may be increased risks of rising debt ratios given pressure from rising interest rates,” it said.

This article appeared on CBC.ca on January 15th, 2014.

The average price of a Canadian home increased 10.4 per cent to $389,119 in December, compared to the same month in 2012.

The Canadian Real Estate Association (CREA) released data Wednesday showing that a total of 457,893 homes changed hands in Canada last year, an increase of about 0.8 per cent from 2012′s level.

MAP: House prices across Canada

“Absent further mortgage rule changes,” CREA’s chief economist Gregory Klump said, “sales in 2014 may surpass the annual total for 2013 if demand holds steady near current levels as strengthening economic and better job growth offset the impact of further expected marginal mortgage interest rate increases.”

As has been the case for some time now, CREA says the large jump in prices was largely due to what was happening in Canada’s most active and expensive markets.

Broad gains

Sales activity in December 2012 in Toronto and Vancouver was abnormally low, which dropped the national average at that time.

“Removing Greater Vancouver and Greater Toronto from national average price calculations cuts the year-over-year increase to 4.6 per cent,” CREA said.

CREA says the average price can be misleading, as it can be too easily influenced by individual factors.

The realtor group says its MLS Home Price Index “provides a better gauge of price trends because it is not affected by changes in the mix of sales activity the way that average price is.”

That index shows home prices rose 4.31 per cent over the past 12 months. Gains were seen in all housing types.

The index was led by an 8.7 per cent gain in Calgary and a 6.3 per cent gain in Toronto.

Vancouver’s market index posted a second straight increase of 2.13 per cent after declines for much of the time between late 2012 and late 2013.

Soft landing?

Economists and policy-makers have been scrutinizing the Canadian housing market for indications of weakness and warning signs of a possible crash.

However, BMO senior economist Robert Kavcic said it was hard to find evidence to suggest anything but a soft landing for the market.

“Look for current balanced conditions and somewhat higher interest rates to lead to steady sales this year, with price growth tucked neatly below the rate of income growth,” Kavcic said.

This article was posted on CBC.ca on January 15th, 2014 and was written by Craig Wong of The Canadian Press.

OTTAWA — Canadian home sales were up from a year ago in December, but slid lower compared with the previous month for the third consecutive time, the Canadian Real Estate Association says.

The industry association said Wednesday that the number of sales last month was up 12.9 per cent compared with December 2012, and the national average price was up 10.4 per cent to $389,119.

However the December’s sales, through the multiple listing service, were down 1.8 per cent from November, continuing a downward trend that began with CREA’s October report.

Read more: http://www.ctvnews.ca/business/home-sales-in-canada-down-in-december-crea-1.1640078#ixzz2qa3VrnmV

“Activity has gradually eased back from stronger than expected levels last summer and is now roughly in line with the 10-year monthly average,” CREA president Laura Leyser said.

“We’ll likely continue getting mixed signals in the months ahead, with positive year-over-year comparisons for sales masking the recent moderation in the monthly sales trend.”

For the full year, there were 457,893 homes sold through the MLS system, up eight-tenths of a per cent from 2012.

Economists and policy-makers have been scrutinizing the Canadian housing market for indications of weakness and warning signs of a possible crash.

However, BMO senior economist Robert Kavcic said it was hard to find evidence to suggest anything by a soft landing for the market.

“Look for current balanced conditions and somewhat higher interest rates to lead to steady sales this year, with price growth tucked neatly below the rate of income growth,” Kavcic said.

TD economist Diana Petramala noted that some of the weakness in December may have been due to the freezing weather.

“However, higher mortgage interest rates appear to be taking some steam out of home demand, particularly for first time homebuyers,” Petramala wrote in a report.

“Five-year mortgage rates have risen by 70 basis points since May. Going forward, a continued increase in longer term interest rates will offset improving economic conditions, helping to keep home sales stable in 2014 and 2015.”

While home sales in December were down compared with November on a national basis, roughly 60 per cent of the local markets across the country saw lower sales.

Declines in Calgary, Edmonton and Toronto more than offset gains in Vancouver, the Fraser Valley and St. Catharines, Ont.

Meanwhile, the number of newly listed homes fell 4.3 per cent on a month-over-month basis in December.

The national sales-to-new listings ratio climbed to 55 per cent in December compared to 53.6 per cent in November.

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