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Sure, you can afford your home now, but what if mortgage rates go up?


Low interest rates and mortgages have been a fact of life in Canada for some time now. At the time of publication, the 5-year average mortgage rate has hovered around 5% for nearly a decade. This is a far cry from late 1981 when mortgage rates were as much as 21%.

New mortgage rules

In 2017, the Office of the Superintendent of Financial Institutions (OSFI) took steps to help protect lenders and home buyers alike against future interest rate increases. Since January 1, 2018, new mortgages are subject to comparison with higher interest rates than the one issued at the time of the mortgage. Homeowners must be able to afford a mortgage at the Bank of Canada's current five-year average posted rate or at an interest rate that's 2% above what they're currently applying for, whichever rate is highest.

Why OFSI made the move

Perhaps motivated by the foreclosure crisis in the United States, the OSFI felt Canadian consumers needed protection from forces deemed outside of homeowners' control.

The effect of the stress test means you may not qualify for the home you desire. If you're targeting a home with a $700,000 mortgage, for example, you may only qualify for about $550,000 under the new stress test rules. This could make a big difference in your choice of neighbourhoods in certain markets. 


Working the stress test process

The new mortgage rules don't have to be a barrier, however. First, there are ways around the stress test standard, which only applies to federally–regulated lenders. Credit unions, which are regulated at the provincial level, are exempt from stress test provisions. The same is true for private lenders. Alternatively, adding a co-signer to your mortgage can increase your mortgage target, even with the stress test rule in place.

How REALTORS® help

There's always lots to consider, particularly if you're a first-time home buyer. In addition to helping you find your dream home, your REALTOR® can also help you navigate the new stress test rules and requirements.

Start by downloading a copy of the Homebuyers' Road Map—a guide covering virtually every aspect related to buying a home. Then, to get an idea of what you might be able to afford, our mortgage calculators includes interest rate risk in its parameters, assuring your estimates will pass the mortgage stress test.

Armed with a little know-how and backed by the support and expertise of your REALTOR®, you'll be on your way to holding the keys to your new home in no time!  


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The International Monetary Fund (IMF) has weighed in on Canada’s housing market, saying it would be “ill-advised” to stimulate housing activity by easing the mortgage stress test.

In a report released by IMF staff this week following an official visit to Canada, the IMF noted the government has been under pressure to “ease macroprudential policy or introduce new initiatives” that would support increased housing activity.

“This would be ill-advised, as household debt remains high and a gradual slowdown in the housing market is desirable to reduce vulnerabilities,” the report reads.

Last week, Conservative Party leader Andrew Scheer said he would eliminate the stress test on mortgage switches at renewal, and consider re-introducing 30-year amortizations for insured mortgages if his party is elected in October.

Research released last month by TD Economics estimated that the B-20 regulations (stress test) resulted in 40,000 fewer home sales in 2018. Similar research from Benjamin Tal, CIBC’s Deputy Chief Economist,  estimated the stress test is responsible for an 8% decline in new mortgages started in 2018, translating into a $15 billion drop in lending activity.

Meanwhile on Thursday, CMHC CEO Evan Siddall said the stress test is “doing what it is supposed to do,” he wrote in a letter dated to the Standing Committee on Finance.

“The mortgage stress test is exactly the kind of policy we need to protect our economy,” Siddall wrote, saying calls from industry groups such as Mortgage Professionals Canada, the Canadian Home Builders Association and the Ontario Real Estate Association to ease the stress test would add to housing demand and price inflation of 1-2% in the larger cities.

“My job is to advise you against this reckless myopia and protect our economy from potentially tragic consequences,” he said.

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Earlier this month, Bank of Canada Governor Stephen Poloz called on banks and other lenders to start pushing longer-term mortgages. Last week, HSBC responded by offering a record-low 10-year fixed rate of 2.99%.


That means the peace of mind of knowing mortgage payments won’t change for 10 years can be had for just a quarter-point premium above HSBC’s own 5-year fixed rate special.


In a recent post, RateSpy.com’s Rob McLister called HSBC’s 2.99% 10-year fixed rate offer “simply remarkable.”

But despite the competitive pricing for long-term rate stability, he cautioned that decade-long mortgages still aren’t for everyone, especially if 5-year fixed rates continue to fall.


While someone with a 10-year fixed rate could switch into a lower 5-year rate should rates drop, that would entail penalties—three months’ interest if the switch is made after the first five years of the 10-year mortgage, or a more onerous interest rate differential (IRD) penalty if the mortgage is broken in the first five years.


“That risk, and the small market-implied odds of meaningfully higher rates in five years, are largely why 5-year mortgages still have the edge over 10-year terms, for most people,” McLister wrote.


In a previous interview, Ratehub co-founder James Laird told Canadian Mortgage Trends that 10-year rates are most suited for those who are most risk-averse, as it allows them to set their budget over a longer horizon and reduces the risk of renewing into higher rates, given that renewals are more frequent with shorter mortgage terms.


“The 10-year fixed rate is an insurance policy, so if you’re really, really concerned about rates rising, and really want to take the risk out of your borrowing, it’s that type of consumer,” he said. But he noted that BoC Governor Poloz himself indicated that rates weren’t likely to make any major moves for an extended period of time. “That is not a good reason to go with a longer term. That’s justification for taking a variable rate or a short term.”

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Last week’s market reports from real estate boards including those in Vancouver and Toronto show that there is recovery underway with even the tough market conditions in Vancouver suggesting a bottoming-out.

This is unlikely to end calls for the mortgage stress tests to be altered or scrapped, says RBC Economics’ senior economist Robert Hogue, but it should “quiet down critics fearing a market collapse.”

In his latest assessment of the Canadian housing market, Hogue says the rebound for Toronto sales in May (resales up 19% year-over-year) says more about weakness a year ago than market momentum, with seasonally adjusted figures pointing to stabilization rather than a surge.

And ‘back-of-the-envelope’ calculations on the slowing of declining resales in Vancouver (-6.9% year-over-year in May compared to -30% in April) show that resales increased by more than 25% month-to-month in May on a seasonally-adjusted basis.

“This is the strongest sign yet that the market isn’t spiraling out of control. In fact, we believe it indicates that a bottom has been reached,” writes Hogue.

The report also notes several other Canadian housing markets as showing encouraging signs.

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MLS® data confirms that the ratio of sales of detached homes compared to strata has flipped in only five years.

Our infograph shows that in 2015, sales of single-family detached homes represented 60 per cent of Fraser Valley’s main residential market. The combined sales of townhomes and apartments picked up 40 per cent. In comparison to year-to-date sales for 2019, that ratio has now reversed. Combined sales of attached homes now garner 60.4 per cent of our market and detached, 39.6 per cent.  

Fraser Valley REALTORS® have been watching the shift towards multi-family housing units for many years now. A myriad of factors impact housing demand, from geography and land scarcity, to population growth and economic conditions. The geographical limitations of being fenced in by the North Shore Mountains, the Strait of Georgia, the border with the United States and the Agricultural Land Reserve in the Fraser Valley, have necessitated a shift in the housing stock toward higher density projects. 

The other main reason behind the shift is affordability. Since the introduction of the federal government’s mortgage stress test January of last year, the typical borrower now qualifies for about 18 to 20 per cent less than they used to.  Taking a typical detached home in the Fraser Valley as an example, instead of being able to afford a home that costs $964,600 (the benchmark price in April), they can now only afford a home that costs a little over $735,000. 

For buyers, the only option is to save more money or consider buying a smaller or less expensive home. The trend towards attached is here to stay. Given the rapidly growing population of the Fraser Valley, a push for increased density as land supply becomes even more constrained is anticipated. That means that attached housing will become an increasingly important part of the Fraser Valley market and we expect that its share of sales will continue to grow.

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A third of Canadian Millennials would rather live in the city than the ‘burbs but for two thirds of those, they are willing to sacrifice that wish to buy the home they want.


A new TD survey finds that 81% of Millennials say they want to own their own home but with affordability (78%) and home size (60%) beating neighbourhood (58%) as the top factors informing homebuying decisions, a move to the suburbs is the right choice for many.


"We're now seeing Millennials looking beyond the city for their housing needs, particularly as they start thinking about their needs for the future, like having more space to raise a family," said Pat Giles, Vice President, Real Estate Secured Lending at TD. "As a result, many are choosing the suburbs to either make the move to a new home or upsize from their current one, a shift from just a few years ago when city living was this generation's preference."


Affordability and space, both inside and outside, are the main reasons for relocation from the city to the suburbs but this may clash with the desire of 45% to live close to work.


CUTTING SPENDING TO BUY A HOME


Millennials are willing to curb their day-to-day spending to further their homeownership dreams.


Most said they would limit eating out, shopping, and entertainment, to be able to afford a home.


"Although homes in today's housing market cost much more than they used to, the desire to own the right home hasn't wavered, especially for Millennials," said Giles

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Mortgage lenders are less likely to approve same-sex couples according to a new study.


Iowa State University's Ivy College of Business studied US mortgage application data from 1990-2015 and found approval rates for same-sex couples were between 3% and 8% lower than for heterosexual couples.


When more detail about applicants' work history and credit worthiness was included in a subset study, same-sex couples were 73% less likely to be approved.


Even for those that were offered a mortgage, rates and fees were higher.


"Lenders can justify higher fees, if there is greater risk," said Lei Gao, assistant professor of finance. "We found nothing to indicate that's the case. In fact, our findings weakly suggest same-sex borrowers may perform better."


There is requirement for borrowers to disclose their sexual orientation on mortgage applications and the Fair Housing and Equal Credit Opportunity acts prohibit discrimination. For the study, same-sex couples were identified as co-applicants of the same gender.


"Policymakers need to guarantee same-sex couples have equal access to credit," said co-author Hua Sun. "Using our framework, credit monitoring agencies also can take steps to investigate unfair lending practices."

Steve Randall-CanadianRealEstateMagazine

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Your HVAC (heating, ventilation, and air-conditioning) system keeps your home breathing – consider it the lungs of your house. A strong, durable HVAC system keeps your home nice and healthy throughout the year. Homeowners play a big role when it comes to maintaining healthier homes, and it’s important to understand what’s in your mechanical room and how it’s affecting your indoor air.


The furnace (or utility) room is my favourite room in the house. It is the lifeline to your home and it often gets no attention. All the ductwork in your home is like the veins in your body. Cycling air throughout the house is the most important thing. If you unbalance the system, that will create a problem. 80% of all homes have poor indoor air quality. If you have spent your money correctly and invested in a house built by a good builder, you are protecting the health of your family. So what’s in your furnace room..


Heat Recovery Ventilator


A healthy home is one that has features that get rid of excess moisture. Although opening up windows is a good option for air exchange, that’s not practical during the winter. That’s why an HRV (Heat Recovery Ventilator) is just plain smart, and is part of the building code in most areas. It brings in air from outside, conditions it to the temperature inside the house and then feeds it throughout your home. That means a constant supply of fresh air. On top of that, an HRV is also wired to the furnace so it actually REMOVES stale air.


Some HRVs have a humidistat which should be installed in a central spot in the house. It’s usually set at around 35-40%. If the humidistat detects that there is too much moisture in the air, it starts up the HRV. How simple is that?


When it’s running well, your HRV can recover up to 80 per cent of the heat from the outgoing stream — which can go a long way to reducing your ventilation and space-heating costs. Now that’s smart.


Your Furnace Is The Heart Of Your Home


Think of your furnace as the beating heart of your home. Ducts are the blood vessels that carry heat to all parts of your home, and return cold air back to the furnace to be reheated. It’s important that you don’t restrict the airflow from your furnace through your home. A clogged furnace filter, furniture blocking cold air returns and heat registers will all help do that. A lot of people think that filters were created to help clean your air, but they were actually made to protect your furnace.


NOTE: A clean furnace filter will let your furnace work more efficiently, and work to protect the unit against circulating dust. If your filter is clogged, that means your furnace fan has to work overtime to pull in air through the filter. You’ll be making your furnace work overtime to compensate – and that means more energy output every month causing wear and tear on the unit more quickly, and a higher energy bill at the end of the month.


Managing Moisture In The Air with an ERV


ERVs manage the moisture in the air that’s being pulled into your home. Some builders install an ERV instead of an HRV. In the winter, your ERV will transfer humidity from the air being extracted from your house, keeping your humidity levels relatively stable. During the hot summer months, the opposite happens, where moisture is pulled out from the incoming air — which reduces the work your air conditioner and dehumidifier have to do to keep things even.


I love ERVs for Canadian winters, when the air coming into your house is dry. In extreme climates like ours, an ERV can take some of the load off your HVAC system.


Maintenance Tip: Pay attention to your HVAC filters. I change mine every three months – but during the summer and winter months (when our systems tend to work harder), I change them monthly. A clean filter really does make a difference in how well your unit works. That means money saved on your monthly energy bills.


By Mike Holmes

Mike’s Advice / Home Safety & Maintenance

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The Internet of things, or IoT, is all about connecting smart devices for people’s comfort, convenience and efficiency. What began a few years ago as mostly a technical phenomenon is today a social trend: connected devices change the way we behave, live, interact and think of our privacy and safety.


IoT is here to stay. The research firm Gartner says that 2019 is the year in which IoT adoption becomes mainstream, with practically most devices and gadgets becoming connected.


For example, the number of wearable devices will increase 25.8% to 225 million in 2019.


Global shipments of wearable devices are forecast to increase by 25.8% year over year to $225 million (GBP 176.3 million) in 2019, according to the latest figures from Gartner. The research firm also predicted that that the end-user spending on wearable devices will reach to $42 billion (GBP 32.9 million) in 2019.


As for smart speakers such as the Amazon Echo and Google Home, they will be the fastest rising category, with a five-year CAGR of 39.1%.


IoT includes all connected devices from smart cars, kitchen appliances, surveillance cameras, locks and doorbells, light bulbs, heat sensors to smart toys and baby monitors.


Gartner predicts the number of connected devices will exceed 50 billion by 2020.


What could these numbers (and IoT statistics) mean for you?


The bigger the smart home market gets, the greater the chance that smart gadgets get into your home, one by one. You start living in a smart home without even thinking of it that way. But, as long as you have devices that ”talk” to you or each other, that connect to your wifi and have an app to control them, you are there.  New sensors, new algorithms and new experiences will make your life more connected, more productive and more comfortable.

Even if your devices are smarter, it’s still your job to make sure they’re safe.


2018 was the year in which people started to pay attention to “data protection” and privacy.  Beyond the legal concerns, people want their privacy to be respected, and they started to push for a change in businesses approach of using their data. Although this problem is far from being solved, people are at least aware of it.


Why would anyone hack your family?


Another challenge that IoT brings for this year is safety. Connecting your devices to the internet creates a gateway into your home and family. Like a real door, it can be used by people who want to force their way in – and many of the smart devices available aren’t even protected by security software and thus are vulnerable to hackers.


They want to take control of your devices to steal your money, use your identity, spy on you or use the processing power of your fancy smart appliance to take down web targets.


You may have read news about IoT devices being infected and exploited, but never thought it could happen to you.


What you can do to secure your smart home

  1. Buy IoT devices only from reputable manufacturers and vendors.
  2. Choose devices with built-in security.
  3. Change the default login and password.
  4. Check for security software updates.
  5. Keep an eye out for sudden spikes in internet traffic or slowdowns in devices — they may be signs of trouble.
  6. Get a security solution for your entire home network to safeguard all the smart devices that share your wifi connection.
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