20 Dec


Mortgage Tips

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Statistics Canada in conjunction with Canada Mortgage and Housing Corporation (CMHC) released their first report this morning from the Canadian Housing Statistics Program (CHSP), providing data regarding the non-resident ownership of Canadian housing. This program was mandated by the last federal budget, filling in a significant data gap in housing statistics. For years, many have speculated that foreigners were the major culprits driving housing prices into nosebleed regions in Vancouver and Toronto. Today’s release shows that non-residents own less than five percent of housing in both cities.
Immigration remains a significant driver of housing activity in Canada. Canada has the most robust population growth in the G7, three-quarters of which is attributable to immigration and foreigners moving to Canada will be of growing importance in the future. But the report showed that non-residents – defined as both foreigners and Canadians whose principal residences are outside of Canada, irrespective of citizenship – are not the primary cause of the housing affordability problem in Canada’s two largest cities.
Many have blamed foreigners– mainly the Chinese–for the sky-high prices that have surged in the past three years–pricing many Millennials out of the housing market. A voter backlash spurred provincial governments to introduce a 15% tax on non-resident buyers in Vancouver (August 2016) and Toronto (April 2017), though earlier available data showed that foreign purchases were only between 5 and 10 percent of all home sales. In both regions, the tax slowed housing activity mainly by changing psychology. New listings surged, and buyers became more cautious as their options improved with more supply and lower prices. Other measures to slow housing activity by government and financial institution regulators have led many to assert that “boomers have priced millennials out of the housing market.”

Data revealed that non-residents (individuals whose principal dwelling is outside of Canada) owned 3.4% of all residential properties in the Toronto census metropolitan area (CMA), while the value of these homes accounted for 3.0% of the total residential property value in that metro area. In the Vancouver CMA, non-residents owned 4.8% of residential properties, accounting for 5.1% of total residential property value.
Estimates of non-resident ownership varied by property type. In both metropolitan areas, non-resident ownership was more prevalent for condominium-apartments. Non-residents owned 7.2% of condominium-apartments in the Toronto CMA and 7.9% of these units in the Vancouver CMA. By comparison, non-residents held 2.1% of single-detached houses in the Toronto CMA and 3.2% of single-detached homes in the Vancouver.
Over the past decade, home prices have accelerated markedly in Canada’s largest urban areas, particularly in Vancouver and Toronto. Data from the Canadian Real Estate Association Home Price Index show prices increased 173.7% in Vancouver from January 2005 to November 2017, while they rose 145.0% in Toronto over the same period. The last three years have been particularly telling, with house prices in Vancouver increasing by more than 60% and in Toronto by more than 40%, triggering great concern about housing affordability.
Below are two infographics produced by Statistics Canada giving more regional detail on non-resident ownership in Vancouver and Toronto. Breaking down the metro regions by municipalities, across the Vancouver CMA, non-resident ownership was most concentrated in the City of Vancouver (7.6%), followed by Richmond (7.5%) and West Vancouver (6.2%). In the Toronto CMA, the shares of non-resident owned properties were most substantial in the municipalities of Toronto (4.9%), followed by Richmond Hill (3.6%) and Markham (3.3%).



Largest Share of Non-Resident Ownership Is High-Price Condos
The most significant share of non-resident ownership in both CMAs was for condominiums, at 7.9% in the Vancouver and 7.2% in the Toronto. (See table below).
In Vancouver, almost two-thirds of non-resident owned properties were condominiums, while in Toronto, this share was close to half. Although the majority of condos were apartments, some were also single-detached houses, semi-detached houses and row houses.
Across the Vancouver CMA, 50.1% of condominium-apartments owned by non-residents were in the City of Vancouver, while 14.9% were in Richmond. In the Toronto CMA, non-resident owned condominium-apartments were primarily located in the City of Toronto (82.8%) and Mississauga (8.6%).
In the Vancouver CMA, the average value of a condominium-apartment owned by non-residents was 30.4% higher than that of a resident held condo-apartment. The City of Vancouver had the highest rate of non-resident ownership of condo-apartments within the CMA. The average value of these apartments was approximately $930,600, which was 25.6% higher than resident-owned.
The relative disparity between non-resident condo prices and resident condo prices in Toronto was much smaller than in Vancouver. In the Toronto CMA, non-resident owned condominium-apartments were on average 8.7% more expensive than resident owned. The City of Toronto had the highest concentration of non-resident owned condo-apartments in the CMA, which were on average valued at $439,000, or 7.6% more expensive than resident-owned.


30646683-0026-44c1-b307-4588effb8193[1]Same is true for Non-Resident Owned Single-Family Homes–More Expensive Than Resident-Owned
For the Vancouver CMA, the average value of a single-detached house owned by non-residents was approximately $2.3 million compared with $1.6 million for resident held. These differences were most pronounced in the Greater Vancouver A subdivision, the City of Vancouver and West Vancouver. In Greater Vancouver A, single-detached houses owned by non-residents had an average value of nearly $8 million, while those owned by residents had an average value of $5.3 million. The average size of a single-detached house held by non-residents in this district was close to 4,800 square feet, 32.2% larger than the average size of single-detached dwellings owned by residents.
In the Toronto CMA, single-detached houses owned by non-residents were on average 12.3% or $103,500 more expensive than homes owned by residents. Differences in average values for single-detached dwellings were most marked in the municipalities of Markham, Richmond Hill and Toronto. In Markham, the average value of single-detached houses owned by non-residents was close to $1.1 million compared with $997,500 for resident owners. In Richmond Hill, non-resident held single-detached homes were, on average, valued at $1.2 million compared with $1.1 million for resident owned houses. In the City of Toronto, a non-resident owned single-detached house was, on average, valued at just over $1 million compared with $965,800 for a resident owned home. These differences, once again, are much smaller in the GTA than in the GVA.

Bottom Line: Non-residents represent a significantly more important factor in the Vancouver region than in the Toronto CMA, as expected. Moreover, non-residents purchase markedly more expensive properties compared to residents in Vancouver than in Toronto.
Wealthy Chinese nationals are a more significant factor in Vancouver than in Toronto, which has been the case for many years–not surprising given the geography. Moreover, many Chinese nationals began buying properties in the Vancouver CMA well in advance of the July 1997 handover of Hong Kong from the United Kingdom to China. Chinese have continued to find the Vancouver region an attractive haven for capital despite the imposition of capital controls in China.
Many are non-residents and have not rented their properties. In consequence, there are relatively more vacant properties in Vancouver than in Toronto. The Vancouver city council approved a tax on empty homes, the first of its kind in Canada, in early 2017, with the first payments due in 2018. Self-reporting owners will be assessed a one percent tax on homes that are not principal residences or aren’t rented for at least six months of the year. Though a similar tax has been discussed by the Toronto city council, to date, it has not had legs.

Dr. Sherry Cooper


Chief Economist, Dominion Lending Centres

19 Dec


Mortgage Tips

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So here we are in the lead-up to the January 1 implementation of the new OSFI B-20 regulations requiring that uninsured borrowers be stress-tested at a mortgage rate 200 basis points above the contract rate at federally regulated financial institutions. It is no surprise that home sales rose in advance of the new ruling. Even so, activity remains below peak levels earlier this year and prices continue to fall in the Greater Toronto Area (GTA) for the seventh consecutive month.

In a speech this week, Governor Poloz of the Bank of Canada confirmed his continued concern about household indebtedness. Indeed, data released this week by Statistics Canada showed that households continued to pile on debt in the third quarter. The household-debt-to-disposable-income ratio rose by a percentage point to 171.1% last quarter. Relative to assets and net worth, debt also edged higher, but those ratios are much closer to longer run levels, painting a far less dire picture of household finances. And even with households taking on more debt, the share of income needed to service that debt was little changed in Q3, as it has been over the last decade. That will change as the Bank of Canada continues to raise interest rates gradually. However, the prevalence of fixed rate mortgage debt means households won’t feel the increase all at once. Instead, the debt service ratio is likely to rise only gradually. The rising cost of borrowing and more stable home prices should slow credit growth in the year ahead.

But with so much attention paid to the imprudent borrower, I think it is important to reiterate that the vast majority of Canadians responsibly manage their finances. For example, roughly 40% of homeowners are mortgage-free, and one-third of all households are debt-free. Another 25% of households have less than $25,000 in debt, so 58% of Canadian households are nearly debt free. Hence, mortgage delinquency rates are meagre.

The Canadian Real Estate Association (CREA) reported yesterday that home sales jumped 3.9% from October to November–the second most significant increase in two years. Home sales have now risen for the fourth consecutive month, led by a 16% jump in the Greater Toronto Area (GTA), which accounted for two-thirds of the national rise. Even so, sales activity in the GTA was significantly below year-ago levels. Victoria, Ottawa and Regina also recorded strong gains, while Calgary, Edmonton and Montreal posted modest increases.

Not all markets participated in the rally, though. Vancouver was among the few holdouts. Resales fell for a second-straight month by 3.7% in the Vancouver area where affordability strains represent a major issue for buyers.

New Listings Shot Up

Many sellers decided to list their properties ahead of the mortgage rule changes. New listings rose by 3.5% in Canada between October and November. Most of this increase took place in the Toronto area where new listings jumped by a whopping 22.9%. A report released earlier this month by the Toronto Real Estate Board showed that active listings in Toronto rose modestly above their 10-year average in recent months after plunging to historic lows at the start of this year. Pressure has come off Toronto-area buyers as they are now presented with more options. This could soon be the case in Vancouver too. New listings rose sharply in November and, with resales declining in the past couple of months, the sales-to-new listings ratio is finally moving toward more balanced conditions (see charts below).

The number of months of inventory is another important measure of the balance between housing supply and demand. It represents how long it would take to liquidate current inventories at the current rate of sales activity. There were 4.8 months of inventory on a national basis at the end of November 2017 – down slightly from 4.9 months in October and around 5 months recorded over the summer months, and within close reach of the long-term average of 5.2 months. At 2.4 months, the number of months of inventory in the Greater Golden Horseshoe region is up sharply from the all-time low of 0.8 months reached in February and March.


Price Pressures Eased

The Aggregate Composite MLS® Home Price Index (HPI) rose by 9.3% y-o-y in November 2017 marking a further deceleration in y-o-y gains that began in the spring and the smallest increase since February 2016. The slowdown in price gains mainly reflects softening price trends in the Greater Golden Horseshoe housing markets tracked by the index, particularly for single-family homes.

Toronto single-family house prices were down 11.6% over the past six months ending November 30 (see chart below). GTA condo prices have fared better, up 0.3% since late May, but the rise is minuscule in comparison to the booming price gains evidenced before the Ontario government’s ‘Fair Housing Plan’ that introduced, among other things, a 15% tax on non-resident foreign purchases of homes.


On a year-over-year basis, benchmark home prices were up in 11 of the 13 markets tracked by the MLS HPI. After having dipped in the second half of last year, benchmark home prices in the Lower Mainland of British Columbia have recovered and now stand at new highs (Greater Vancouver: +14% y-o-y; Fraser Valley: +18.5% y-o-y). Benchmark home prices rose by about 14% on a y-o-y basis in Victoria and by 18.5% elsewhere on Vancouver Island in November, on par with y-o-y gains in October.

Price gains have slowed considerably on a y-o-y basis in Greater Toronto, Oakville-Milton and Guelph but remain above year-ago levels (Greater Toronto: +8.4% y-o-y; Oakville-Milton: +3.5% y-o-y; Guelph: +13.4% y-o-y).

Calgary benchmark home prices remained just inside positive territory on a y-o-y basis (+0.3%), while prices in Regina and Saskatoon were down from last November (-3.5% y-o-y and -4.1% y-o-y, respectively).

Benchmark home prices rose 6.7% y-o-y in Ottawa, led by a 7.6% increase in two-storey single-family home prices, by 5.6% in Greater Montreal, driven by an 8.3% increase in prices for townhouse/row units, and by 4.6% in Greater Moncton, led by a 7.8% increase in one-storey single-family home prices. (see table below)

The MLS® Home Price Index provides the best way of gauging price trends because average price trends are prone to be strongly distorted by changes in the mix of sales activity from one month to the next.


Chief Economist, Dominion Lending Centres

13 Dec


Mortgage Tips

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Every once in a while, a bank will advertise a cash back mortgage. It sounds great but there are a few things to consider.
When you purchase a home, you may find that you need some extra cash. You may want to renovate, purchase some furniture, or start on building a fence or landscaping.. Fortunately, some Canadian lenders offer mortgages that give you a cash back rebate when you take out your mortgage.
With a cash back mortgage, your lender advances you a cash lump sum when your mortgage closes. The most common sum you receive is 5% of your mortgage amount, but it’s possible to get between 1% and 5% depending on the lender you choose. Note that you receive these funds when the mortgage closes. The funds cannot be used for your down payment, however if you borrowed your down payment you could use the funds to pay back the loan.
This sounds like a great idea but there are some down sides to this type of mortgage. First- you will pay about 1.5% higher interest rate for the duration of the mortgage term. Usually this is a five-year term and if you take a look at how much extra interest you are paying you will find that it takes you five years to pay this sum back to the lender.
Another point to consider is that Canadians move on average every three years. What if you have to break the mortgage? In that case, you owe the lender the usual three months interest or Interest Rate Differential (IRD) as well as the balance of the cash back balance. This could be a very pricey move. If your lender allows it , it’s best to port your mortgage to your new home to avoid the double hit of the penalty and paying the cash back.
A cash back mortgage is a great option but it’s not for everyone. Be sure to tell your mortgage broker if it’s at all possible that you will have to move before your mortgage term is over so that he or she can advise you on what your penalties would be. If you have any questions, contact your local Dominion Lending Centres mortgage specialist.


Dominion Lending Centres – Accredited Mortgage Professional