Canadian Housing Market Outlook: CMHC Report
The Canada Mortgage and Housing Corporation has released a report for the first quarter of 2011. The headline of the report reads:
Canada’s Housing Market Is Stabilizing
This will come as great news for many home owners and Real Estate professionals. However, what does it mean to you if you are thinking about buying a home this year? Here are some of the highlights from the report. To read the full report click on the link at the bottom of the post.
Housing starts: Over the course of 2010, housing starts moderated from their strong pace at the beginning of the year ending up at 189,930 units started. Looking ahead, housing starts will be in line with demographic fundamentals. Housing starts are forecast to be 177,600 units for 2011 and 183,800 units for 2012.
Resales: Sales of existing homes through the Multiple Listing Service® (MLS®)2 have regained traction in the fourth quarter of 2010. MLS® sales will experience a minor decline in 2011 before increasing in 2012. Overall, 441,500 sales are expected in
2011, followed by 462,900 in 2012.
Resale prices: The average MLS® price edged higher in the fourth quarter of 2010 and is expected to grow modestly moving forward as market conditions will remain balanced. For 2011, the average MLS® price is forecast to be $348,900 while 2012 will see a further increase to $358,200.
Provincial Spotlight
Alberta and B.C.: Housing starts will moderate in all areas of Canada except British Columbia and Alberta. In 2011, starts are forecast to increase by 1.6 per cent in B.C. and will remain steady in Alberta.
Ontario: A recovering economy and improving employment situation will push Ontario starts up, but not until 2012. As is the case for most other provinces, new home construction growth is expected to slow in 2011.
National Housing Outlook
In Detail
After a strong start in 2010, housing starts moderated in the second half of the year. Housing starts are expected to edge lower in the first quarter of 2011 after which they will trend gradually higher, reaching a seasonally adjusted annual rate of 178,990 units by the fourth quarter. Given the degree of economic uncertainty, we have considered an array of economic scenarios to generate a range for the housing outlook in 2011 and 2012. Accordingly, we expect starts to be between 157,300 and 192,900 units in 2011 and between 154,600 and 211,200 units in 2012. CMHC’s point forecast for housing starts is for a decrease from 189,930 units in 2010 to 177,600 in 2011 then increasing to 183,800 in 2012
Housing starts are forecast to be down in all areas of Canada, except for Alberta and British Columbia in 2011. In 2012, housing starts are forecast to increase in British Columbia, Alberta, and Ontario, and to decrease in the remaining provinces.
Measures recently announced for government-backed mortgage insurance will moderate housing starts activity. Some potential buyers will have to save a larger minimum down payment in order to qualify for mortgage insurance and thus postpone their purchase. Alternatively, some potential buyers may buy smaller, less expensive homes. The new measures, however, are only a few of the many factors that will affect the new housing market.
To read the full report, click here.
High Debt to Income Ratio for Canadians Leads to New Mortgage Rules
By Kristin Gordan Woolard
The overwhelming 145 % consumer debt to income ratio in Canada has led The Minister of Finance, Jim Flaherty, to announce three new changes to mortgage rules. However, I feel the recent changes have completely missed the mark of their intention.
The changes come into force on March 18th, 2011 and will reduce the maximum amortization from the existing 35 years down to 30 years. As well, the maximum amount that a consumer can refinance their home will be 85% of the value as opposed to the current 90%.
The final change is that there is that as of April 18th, 2011, there is no option for a Home Equity Line of Credit past the 80% of value level.
The change to secured lines of credit, in my opinion, will have little impact. While the mortgage insurers, such as CMHC, offered an insurance product on secured credit lines, there were very few lenders who offered such a product. The other two changes, however, are cause for concern.
A reduction in maximum allowable amortization for mortgages means that homebuyers now have to qualify based on a higher payment – about $35 for every $100,000 in mortgage amount. That’s almost $160 per month for a purchase of $450,000 – a low price for a home in the greater Vancouver area. Combine that with last year’s regulation that Canadians have to qualify on the Bank of Canada five-year benchmark rate (currently 5.19% for variable mortgages and any term shorter than five years) and Canadians’ options are extremely limited.
One of the driving factors to our country’s housing market recovery is the first-time homebuyer. With the new 30-year maximum amortization, many young Canadians will be out of luck as they won’t be able to meet the debt-to-income ratio policies of the lenders. Thank goodness the minimum down payment requirement was not increased from 5% to 10% down at the same time as rumours were circulating! At least we dodged a bullet there.
Another aspect of qualification that would have affected first-time homebuyers drastically did not come to fruition. Currently, only 50% of a monthly condominium maintenance fee is required to be included in the debt-servicing ratio. It has been thought that it may be increased to 100% of the monthly condo fee, but that was not announced with the current changes.
And so we come to the issue that is causing me the most confusion – the reduction of the maximum level for refinance from 90% down to 85%. If consumer debt is the problem, how is reducing the amount of equity Canadians can tap into to pay out high-interest consumer debt possibly going to help? Turning consumer debt into a lower interest, lower payment obligation through refinancing and eliminating credit payments is wise given the near historical low mortgage rates still being offered. And seeing that Canadian mortgage default is among the lowest in the world, shouldn’t we be encouraging the switch from unsecured credit debt to secured mortgages where we have a proven responsibility?
I shudder to think that many people could be forced to sell their family home if it becomes necessary due to unforeseen circumstances to use the equity they have built up in their home now that refinancing is restricted to 85%.
Discussion in the office this morning also touched on what the effect that having fewer qualified buyers due to the recent changes will have on the housing market, let alone the Canadian economy. Fewer buyers qualifying, fewer homes sold, housing surpluses in the market, devaluation of home prices to try and encourage sales, a stoppage of new home construction, loss of jobs… and so on.
Jim Murphy, President of the Canadian Association of Mortgage Professionals, commented that while he understands what Jim Flaherty did he hopes the government shows the same willingness to change if the market cools further.
“We understand why he did what he did,” Murphy said. “But we hope when the time comes, he’ll revisit that decision. Real estate is very important to the economy, and it’s crucial that we find a balance because you don’t want to overreact to temporary market conditions.”
I’m sure I’m not alone in hoping that no further changes to mortgage legislation are on their way. And don’t even get me started about a study in 2008 where Sharpe, Arsenault and Harrison found that the median real earnings of Canadians barely increased between 1980 and 2005, and that over the same period, labour productivity had risen by 37.4%.
If you think about this, profits are up 37.4% percent and our wages are pretty much the same as 1980 so reign in our personal debt? Read more…
MEDIAN WAGES AND PRODUCTIVITY GROWTH IN CANADA AND THE UNITED STATES
http://www.csls.ca/notes/Note2009-2.pdf
Kristin has been in the mortgage finance industry for 11 years and independently licensed since 2002. She currently works for Dominion Lending Centres. Her highly approachable manner and professionalism make the mortgage experience seamless and stress-free for her clients. For information, you can contact Kristin at www.kristinwoolard.ca
New CMHC Policies That Could Effect You
By Leah Coss
Well, today, April 9th 2010, starts a new era of mortgage insurance policies from CMHC (Canadian Mortgage Housing Corporation). Upon the government’s review of our economic situation they decided to make some new government mandated changes that will be officially starting as of April 19th, 2010.
CMHC, however, has created additional new internal policies (not government mandated) that will effect who can and cannot get approved for their mortgage insurance. If you put down less than 20% down payment then you will have to also be approved by a mortgage insurer in addition to your mortgage lender. If you can’t get approved by the insurers, then you can’t get approved.
Keep in mind, CMHC is only 1 of 3 mortgage insurers out there. These changes ONLY apply to CMHC’s policies
The changes will apply to people who are:
1. Self employed or 100% commissioned
2. Own rental or investment properties
So what are these new changes that we will have to work around in addition to the already restricting Government changes?
Let’s start with the changes to people who are self employed or 100% commission. There was a program where you could just state your income and not have to declare it or “prove” it on paper. This was really only applicable to self employed or commissioned sales people because it is often difficult for them to document their income according to traditional bank guidelines. This is due to tax write offs with self employed borrowers. With the stated income program you could also just put 5% down for a down payment.
Those days are now gone with CMHC. You can now ONLY state your income if your business is LESS than 3 years old. If your business is older than that then you will have to document your dollars and prove your income just like all other borrowers.
The second change is that for those of you who do fall within the stated income guidelines of less than 3 years in the business, you will now have to put 10% down and not just 5%.
With respect to the changes to people looking to buy an investment property, or who already own investment properties, or have basement suites, these next changes may hurt you a little as the changes are drastic.
One part of the government mandated changes starting April 19th is that to purchase an investment or rental property you will now have to put 20% down, not just 5%. This is law.
What CMHC has done is take it a little further to ensure that no one gets in over their head when they purchase a home where they are depending on that rental income every month. For many, if your rental suite is empty for more than a couple months you may find yourself unable to make your large mortgage payments and eventually lose your home.
Without getting overly complicated for you, basically what they have done is change the math so that you will qualify for a smaller dollar amount. When we as a Mortgage Broker pre approve you for a dollar amount to buy a rental home, we take into consideration the fact that you will probably use the rental income to pay for your mortgage. The problem is they need to account for the months that will occur when your suite goes unrented as well as other expenses that come from having renters.
Previously we could take 80% of your rental income and use it to off set your other costs which was very beneficial for you. Now, we can only take 50% of the income and then only 44% of that to add to your income.
In simpler terms you are going from an 80% offset to a 22% offset. A Significant Difference! For the actual calculations on how this is done you can read about it here.
Lastly, with the old rules, a declaration from an appraiser of the amount of rent you can potentially collect for your suite you could simply submit that to your lender and nothing else needed to be done. As of now, if it is a new purchase than this is still the case.
When refinancing, however, with the new CMHC changes you will now have to show tax returns proving you have paid taxes and declared the rental income as income to the government. It will be the profit and loss that is shown on your tax return that will be used to qualify you.
This will also be the case if you are perhaps buying a new home for yourself and have a rental property in your portfolio already. You will only be able to use the income declared on your tax forms to help qualify you for a new home.
If you want more information on the CMHC changes and how they will effect you, call Leah at 604.313.9996 or email her at coss.l@mortgagecentre.com
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