There could be a spike in mortgage applications in the third quarter if a rate forecast from the British Columbia Real Estate Association is realized.
The association’s economists are expecting interest rates to ease during much of 2019 as weaker economic conditions force a hold-steady from the Bank of Canada.
If 5-year bonds maintain their current level, there should be a move for the 5-year qualifying mortgage rate, which has not moved for almost a year.
Their forecast calls for 5-year qualifying mortgage rates to fall from 5.34% in the first quarter of 2019, to 4.99% in the second quarter, and reaching a year-low of 4.84% in the third quarter.
Rates are then predicted to climb to 5.15% in the last quarter of 2019 and early 2020 before plateauing at 5.34% for the rest of 2020.
The 5-year average discounted rate is set for a drop to 3.44% in Q2 2019 (from 3.60% in Q1), then a low of 3.30% in Q3 before climbing back to 3.44% in Q4, 3.64% in Q1/2 2020, and 3.74% in Q3/4 2020.
BoC to cut rates?
There are some economists predicting that the BoC may actually cut rates in 2019 rather than just maintain their current level.
However, BCREA’s economists do not expect this, favouring a rate freeze in their outlook.
The outlook also notes that longer term, when the BoC moves towards a ‘neutral’ interest rate, its stated intention, the corresponding hike in the level at which mortgage borrowers are stress-tested will make that policy unsustainable under its current methodology.
The traditional option of a condo as a cheaper alternative to a single-family detached home is less attractive in the hottest cities.
RBC says that demand for condos has driven prices higher and their affordability measure has increased (become less affordable) by far more than single-family homes (2.9% vs. 0.9%) over the past year.
Buyers of an average condo in Vancouver, Toronto, Victoria, and Montreal pay a premium of more than $900 per month relative to renting a two-bedroom apartment, a figure that has ballooned in the past three years.
Buying a condo is a bigger step up from renting than it's ever been in these cities.
Interest rate outlook
RBC Economics is not expecting rates to rise anytime soon but does forecast a continuation of the strong labour market, helping boost household income.
OTTAWA _ On the eve of a federal election this fall, the Liberal government is looking to help more Canadians buy their first homes by picking up a portion of their mortgage costs and increasing the amount they can borrow from their retirement savings for a down payment.
Helping people enter the housing market has been a growing preoccupation for the Liberals ever since they were elected in 2015, with soaring real-estate prices in some of Canada's largest cities putting home ownership beyond the reach of many.
An estimated 1.6 million Canadian households are considered in ``core housing need,'' meaning people who are living in places that are either too expensive or don't suit their needs.
The means-tested incentive the Liberals unveiled Tuesday would only be available to
households with incomes under $120,000 _ roughly $50,000 more than the median household income as calculated by Statistics Canada _ and on mortgages no more than four times the household's total income.
Eligible buyers would see the government pick up part of the costs of their mortgages to lower their monthly payments, with the amount of help determined by their incomes and whether they're buying an existing or newly built home.
The government also plans to raise the maximum amount a first-time buyer can withdraw from an RRSP: $35,000, up from $25,000. And while the program has long been restricted to new would-be homeowners, those who are recovering from the breakup of a marriage or common-law relationship would also be allowed to take part.
The measure, expected to cost $1.25 billion over three years beginning this fiscal year, would target Canadians ``that face legitimate challenges entering housing markets'' after qualifying for a mortgage, the budget document says. An additional $100 million would flow to the Canada Mortgage and Housing Corporation to help organizations that already provide the so-called ``shared equity mortgages.''
The government would recoup its costs when the house is sold, although the budget document isn't clear what would happen if the home is sold for a loss.
The program, some details of which are yet to be finalized, is part of a tranche of spending that includes establishing a national expert panel on housing supply and affordability, better data collection, and $300 million for a contest to encourage cities to come up with new ways of expanding housing stock.
The new measures could increase the annual number of new homebuyers nationally to 140,000 from 100,000 by lowering monthly payments without creating higher household debt loads, said Finance Minister Bill Morneau, who was confident the measures won't cause a spike in housing prices.
``We're recognizing that it is challenging for people in the housing market; it's a real issue, but what we've done is we've carefully looked at what's the best way to deal with that issue,'' Morneau told a news conference.
``It's not going to make an impact on the overall market from a pricing standpoint, meaning people are actually going to be better off, more optimism in terms of housing, and it's the reason we're very excited about this measure.''
Economists and experts had been concerned that Morneau's focus on helping millennials, in particular, get footholds in the market could juice home prices after years of trying to cool demand in places like Toronto and Vancouver. Federal efforts, such as a new financial ``stress test'' to make sure a buyer can afford a mortgage, have slowed prices from where they might have been.
Scotiabank economist Marc Desormeaux said the Liberals opted for a relatively modest measure, considering the options they have.
``This is providing additional support for individuals who have already qualified for homes, helps them relieve some of their monthly payments once they've qualified for a mortgage and entered into the contract,'' Desormeaux said.
``The concerns about stoking demand from some of these measures aren't concerns that we would raise at this time.''
What the measures should do is increase supply _ one of the measure's stated goals. The government plans to cover five per cent of the cost of the purchase of an existing home and 10 per cent of a new build, hoping to ``encourage the home construction needed to address some of the housing supply shortages'' across the country, the budget document says.
Mathieu Laberge, an expert with Deloitte, said the measures appear to target people who would be willing to rent or buy smaller condominium units, for example, outside a major urban centre.
``It may shift the decision-making of some buyers in larger cities,'' said Laberge, a former policy adviser to Social Development Minister Jean-Yves Duclos. ``You're changing the relevant price between rental and home ownership in those areas, like the immediate suburbs of, for example, Vancouver and Toronto, which is a way to provide more options to households that would otherwise be priced out of the market.''
Tuesday's budget also includes $10 billion more for a program to fund the construction of new rental units _ the third time the Liberals have expanded the program, which aims to create 14,000 units over 10 years and now carries a $50-billion price tag.
The Canadian Press-Jordan Press
BCREA calls for B-20 review, return to 30-year amortizations
The body representing real estate agents in BC is urging the federal government to review the B-20 mortgage guidelines and the stress test in particular.
British Columbia Real Estate Association says that the requirements of the rules are negatively affecting housing affordability in the province and harming the ability of credit-worth British Columbians to own their own home.
“We would like to see a review and reconsideration of the current mortgage underwriting ‘stress test,” says BCREA chief executive officer Darlene Hyde. “These rules must be changed now before BC families are left further behind.”
Although the B-20 stress test provision has led to an 18% drop in home sales nationwide, it has hit Vancouver the hardest with a 45% decline since the rule was introduced. In Toronto sales were down 25%.
“The B-20 stress test is also having a negative impact on homeowner equity, family spending and the housing stock itself,” adds Hyde. “There’s a knock-on effect to the overall economy as families who are worried about declining home equity cut back on retail spending, home renovations and other products and services.”
BCREA warns that as housing demand weakens, builders pull back from the market, with a resulting supply crunch down the road.
Vancouver, BC – March 13, 2019. The British Columbia Real Estate Association (BCREA) reports that a total of 4,533 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in February, a decline of 27 per cent from the same month last year. The average MLS® residential price in the province was $678,625, a decline of 9.3 per cent from February 2018.
Total sales dollar volume was $3.08 billion, a 33.8 per cent decline from the same month last year.
“Prospective homebuyers continue to be sidelined by the mortgage stress test,” said Brendon Ogmundson, BCREA Deputy Chief Economist. “As a consequence, and despite a strong BC labour market, sales remained slow in February.”
Total MLS® residential active listings increased 36.5 per cent to 30,891 units compared to the same month last year. The ratio of sales to active residential listings declined from 27.4 per cent to 14.7 per cent over the same period.
“Falling mortgage rates should provide some relief for homebuyers, providing a small boost to affordability heading into the spring,” added Ogmundson.
Master-planned communities have the obvious advantage of elaborate planning that standalone developments don’t, and that makes them superior investments.
“Master-planned communities have the advantage in that you know how the community will change over time,” said Brad Jones, VP of development at Wesgroup in Vancouver. “You know how the community will grow and which retailers are coming on board. There are also parks, schools and a clear ability to understand how your neighbourhood, and your investment, will change over time.”
Wesgroup is in the midst of developing River District, the largest master-planned community in Vancouver, that has 54 development parcels over approximately 130 acres. In total, the community expects about 15,000 residents will be spread across 7,000 units of housing.
“River District has the unique advantage of one company doing all the buildings, doing all the master-planning work and owning all the retail and commercial space,” said Jones. “Your investment is going to be looked after by us because we’re looking after our own investment, too. We’re buying into the future of the community, like every buyer is, rather than just a few buildings. We’re the landlord for the grocery store, the bank and the liquor store. We’re looking after the community’s reputation by building and thinking long-term.”
There are three major phases, the second of which is under construction to build out what Jones calls the town centre, where roughly 250,000 square feet of retail is going, as well as a condominium called Mode. The mixed-use project will also have schools and a daycare, which is sure to help valuations surge, added Jones.
“The community plan includes an elementary school, a secondary school, and a community centre.”
The development’s demography will be as diverse as its offerings. Jones says growing families, downsizers, and everyone in between, are already moving into River District. Another one of its draws is that it’s nestled close to downtown, Richmond, Burnaby, and other employment hubs in the region.
“That gives us a broad buyer and resident group to pull from,” said Jones. “We’re focused on the big picture and ensuring that every building contributes to the whole rather than developing one or two buildings, then leaving. It is important to us that the housing is fully occupied, just as it’s important to us that the retail components are fully occupied with the right tenants. It’s about the big picture.”
Despite housing affordability concerns across the country, homeownership rates in Canada remain among some of the highest in the world.
As of 2016 (the most recent data available), Canada boasts an overall homeownership rate of 67.8%, down slightly from a peak of 69% in 2011, according to research from RBC Economic Research. Comparatively, the U.S. has a homeownership rate of 63.4%.
Even for those aged 35 and under, more than 40% of households own their own homes.
“We take issue with the notion that Canada has a homeownership problem,” reads the RBC report. “…the proportion of all Canadian households who own a home is one of the highest among advanced economies.”
The report cautions the federal government to “tread carefully” when considering measures to address the issue of affordability.
It argues that those measures—such as relaxing the mortgage stress test, extending amortizations for insured mortgages or increasing the allowable RRSP takeout for first-time homebuyers—would only bring short-term relief to homeowners and do nothing to address the issue of high household debt.
RBC adds that the measures focus on boosting demand and increasing buyers’ purchasing power, which on their own would likely inflate prices and lead to a further deterioration of affordability down the road.
“[Those measures alone] do nothing to address what we believe is the root of Canada’s housing woes: gaps in the mix of housing options in some of Canada’s larger markets,” reads the report. “In our view, the longer-lasting remedy to Canada’s affordability crisis lies first and foremost on the supply side of the equation.”
It adds that solving supply isn’t the federal government’s responsibility alone, and calls on all levels of government to work together to develop solutions.
“What millennials in Vancouver and Toronto really need is more inventory of homes they can afford, and a better mix of housing options—be it to own or rent,” the report says.
“At the very least, the collective goal should be to remove barriers (regulatory, administrative or otherwise) inhibiting home developers and builders to respond quickly to the demand for new housing—especially when that demand is rising rapidly.”
via Steve Huebl - Canadian Mortgage Trends
The declining trend of home sales in British Columbia is expected to end in 2019 with a modest climb in forecasted sales, although conditions will remain subdued.
The British Columbia Real Estate Association expects MLS residential sales in the province to gain 2% in 2019 to 80,000 units, up from 78,345 in 2018.
By 2020, the forecast is 85,500 units, a 6.9% increase to take sales just above the 10-year average of 85,800 units.
“Extending the amortization period on insured mortgages, easing the stress test introduced last year or increasing the $750 tax credit for first-time buyers might encourage more millennials to purchase a condo, the only type of property within financial reach,” he added. “But since most millennials ultimately aspire to purchase of a single-family home, it’s worthwhile asking whether Canada needs any more condos right now.”
“Attempts by urban planners and policy-makers to condition Canadians into accepting condo living as a permanent state in life have not stopped millennials from dreaming the suburban dream,”