Thursday, August 22, 2013
Federal finance Minister Jim Flaherty said today he is satisfied with the measures his government has already taken to calm the housing market and has "no plans" to intervene any further.
Flaherty said the government watches the housing and condo market closely, and noted that in the last five years, he has taken steps, including changes to mortgage lending rules, to deal with a hot housing market. But, he said, "there are no plans presently to intervene further."
Flaherty was asked about the housing market and a range of other issues when he spoke to reporters Wednesday ahead of his annual summer policy retreat in Wakefield, Que., across the river from Ottawa.
Flaherty hosts an invited group of experts and representatives every summer to discuss what governments as well as the private sector can do in response to current economic challenges. The retreat feeds into preparations for the government's fall economic statement and the 2014 budget. This is his seventh summer meeting.
The finance minister said the government does have contingency plans for the housing market if necessary.
"What has been done before can be done again — if we have to. But so far I'm satisfied that we have a balance in the real estate sector."
Flaherty described the condo markets in Vancouver and Toronto as "bumps" in that balance, but said "overall I'm satisfied that the measures we've taken over the past several years have adequately calmed the markets."
Canada is in a relatively good economic situation right now, Flaherty said, but the European and American economies remain concerning.
One of the questions Flaherty and his guests may discuss is the future of stimulus measures in the United States. Improving U.S. economic numbers have some wondering whether the U.S. Federal Reserve will soon back off its monthly monetary stimulus that has kept borrowing rates low, and that has some investors worried.
Flaherty said he's "not a big fan of so-called fiscal easing or whatever it's called."
"We're moving toward a balanced budget, I think that's the best protection for Canadians," he said.
He said he anticipates the issue of quantitative easing will come up at the G20 meeting in September in Russia, and that it is contentious.
"As you know, we in Canada have not been fans of quantitative easing unlike the United States and elsewhere," said Flaherty.
"The danger in the longer term, to me as a finance minister, is inflation."
Flaherty said the financial assistance from the federal government to Alberta and Quebec to help with this summer's flooding and the Lac-Mégantic train derailment tragedy will not affect balancing the budget by 2015.
"We'll be OK. I've looked at the numbers," he responded. "There's enough room."
It's not known yet how much money the federal government will give to those provinces to help with rebuilding efforts.
The finance minister said the government is on track to balance the budget by 2015 and that when Prime Minister Stephen Harper launches a new agenda after a throne speech this fall it's unlikely there will be any big spending programs.
"If you're looking for anything startling from the department of finance I think you'll be disappointed," he told reporters.
Seventeen people were participating in Wednesday's meeting according to a list provided by Flaherty's department. He was asked about the cost of hosting the annual gathering and whether it is worth the money, given that he and his department hold pre-budget consultations across the country.
Flaherty said this is a time of year when he can get academics, businesspeople and others together in one room and that their advice will help him prepare for the next budget.
"I think it's incredibly invaluable to the Canadian people," he said about the retreat.
Tuesday, August 20, 2013
Garry Marr | 13/08/15 | Last Updated: 13/08/15
Another month of housing data is guaranteed to produce one thing: more arguments about where the market is going.
Statistics from the Ottawa-based Canadian Real Estate Association show actual July sales were up 9.4% from a year ago while average sale price nationwide rose 8.4% to $382,373 during the same period.
Given the housing market seemed to be sliding just a few months ago, the question is where is it headed next? At stake is further federal government intervention, something Ottawa seemed to do this month as Canada Mortgage and Housing Corp. tightened some mortgage lending rules.
On one side of the divide you’ve got the real estate community with people like Phil Soper, chief executive of Royal LePage Real Estate Services, saying improved results for sales and prices in July are not all that dramatic by historical standards.
Their opponents are the housing naysayers like David Madani of Capital Economics who has been calling for a housing pullback since February 2011 and portrays the recent bump in sales as a last gasp before the market cools for the rest of 2013.
Mr. Soper said people have been predicting the market was going to fall going back to 2008. “It is as believable as the prediction from Capital Economics that home prices are going to fall by 25%. They just keep rolling out the same forecast year after year,” he said. “They try desperately to come up with a new reason [for the market to fail] — and now it’s because interest rates are going up.”
The real estate executive says July sales statistics from a historical standard were “tepid” and adds the numbers gets “the big headline” because the comparison is to a period when housing sales were slumping badly.
As for the idea that consumers rushed into the market to beat rising mortgage rates, Mr. Soper says consumers have been hearing that rates are going up for too long and are now immune to the chatter. A five-year fixed rate closed mortgage had dipped as low as 2.99% this year but that same product is around 3.59% today.
For his part, Mr. Madani says even a minor move in mortgage rates can have dramatic impact on the market because marginal home buyers are sensitive to even moderate changes in monthly payments. He adds new home sales have been slumping because consumers want to get into their property right away so they can secure immediate financing and not wait up to a year for a low rise home to be completed.
“[The market] has only pulled forward sales that would have happened later in the year,” said Mr. Madani.
He adds people who claim his call on the market is wrong will have to be patient. “Yeah, we’ve pushed the timeline out a bit,” said Mr. Madani, acknowledging his original call was made about 30 months ago. “We are dealing with something involving irrational exuberance, beyond the scope of any economic forecasting model.”
We are dealing with something involving irrational exuberance
While other economists are not as bearish, they do see a moderating market. Sonya Gulati, senior economist at Toronto-Dominion Bank, says higher rates will limit sales increases but she still sees gains for 2014.
“Price growth ought to see some weakness in 2014, as the supply of new and resale homes creep up,” she said. She notes the industry’s aggregate MLS home price measure, which is less distorted by the composition of sales for a given month, shows July prices were up only 2.7% year over year.
Robert Hogue, senior economist at Royal Bank of Canada, struck a similar tone. “Fairly brisk July resale activity — matching the 10-year average — effectively confirmed that the recent months’ strengthening trend was no fluke and that last year’s slowing was not the prelude to a major correction,” said Mr. Hogue, who nevertheless sees a small decline in sales for 2014.
Meanwhile, CREA says the latest data just shows the market is leveling off a bit and sales activity is really just average at this point.
“Canadian home sales have staged a bit of a recovery in recent months after having declined in the wake of tightened mortgage rules and lending guidelines last year,” said Gregory Klump, chief economist with CREA, who expects August results will also look strong as they are compared to a weak 2012. http://business.financialpost.com/2013/08/15/canadas-housing-market-the-one-that-no-one-can-predict/
Tuesday, August 13, 2013
HOMEBUYERS SEARCH ONLINE
A new collaborative report by Google and the National Association of Realtors (NAR) has uncovered some interesting trends and insights into the ways digital media is used in the home buying process.
One of the most eye-catching statistics included in the report is that 90 percent of American homebuyers used online resources while searching for a new home.
The data, collected by Google and the NAR through a variety of surveys conducted during 2011 and 2012, also pointed to some intriguing trends related to the digital realm’s effect on the homebuying experience. Check out some highlights from the report below…
- Real estate related Google searches have grown 253 percent over the past four years.
- Shoppers will perform an average of 11 searches prior to taking action on a real estate site.
- 69 percent of home shoppers who take action on a real estate brand website begin their research with a local term (eg. Houston homes for sale) on a search engine.
- Mobile applications are used by 68 percent of new home shoppers at the onset and throughout their research.
- Where do new home shoppers use their mobile devices? Here’s the breakdown: 77 percent at home, 31 percent at work, 28 percent when waiting in line, 27 percent at restaurant and 26 percent at other peoples’ homes.
- YouTube is the top video research destination for home shoppers.
- 78 percent of new home shoppers visit three or more sites prior to taking action on a real estate site.
- 31 percent of home shoppers who take action on a real estate site are aged 25 to 34.
- 52 percent of first time buyers started their search online.
- 77 percent of first time buyers drove by a home viewed online.
1 year fixed 2.79%
5 year rate special 3.29%
10 year fixed 3.69%
Variable rate prime minus .50bps
Home Equity Line Of Credit prime plus .50bps 3.5% fully open
Wednesday, August 7, 2013
TARA PERKINS The Globe and Mail Aug. 06 2013
Ottawa is taking new steps to cool the country’s housing market.
Canada Mortgage and Housing Corp. is limiting guarantees it offers banks and other lenders on mortgage-backed securities. The measure comes amid the federal government’s efforts to protect taxpayers from financial risks in the housing sector, further cool lending and add upward pressure to mortgage rates.
The Crown corporation has notified banks, credit unions and other mortgage lenders that they will each be restricted to a maximum of $350-million of new guarantees this month under its National Housing Act Mortgage-Backed Securities (NHA MBS) program. The decision comes in the wake of “unexpected demand” for the guarantees, a spokeswoman for CMHC said in an e-mailed statement.
The conversion of loans into securities with CMHC backing has become a popular way for lenders to tap funds from a broad range of investors, enabling banks to issue more mortgages and at a lower cost.
Federal Finance Minister Jim Flaherty, concerned that Canada’s housing market might overheat and infect the economy, has been taking steps to cut back the flow of mortgage credit. This spring, he went as far as to publicly chastise some banks for dropping their mortgage rates too low.
He is also taking steps to reduce the degree to which taxpayers backstop the housing market.
This year, he announced he would restrict the ability of banks to buy bulk insurance from CMHC, and he curtailed the use of government-backed insurance in securities sold by the private sector. Ottawa released a legal framework for covered bonds, another type of bond backed by pools of mortgages, last year. It said banks could not use insured mortgages in such securities.
In addition to removing fuel from the housing market, these moves force banks and other lenders to take on more of the risk of mortgage defaults, rather than offloading that risk to Ottawa.
Canada’s housing market slowed in the wake of the government’s moves, namely Mr. Flaherty’s decision last summer to tighten mortgage insurance rules. Still, prices in most areas continued to climb, and sales have begun to bounce back.
“The government is attempting to tighten credit conditions for home loans, for example the changes to CMHC’s underwriting standards last year, and this is the latest iteration of that effort,” said National Bank analyst Peter Routledge.
He said that the four largest mortgage underwriters, Royal Bank of Canada, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and Bank of Nova Scotia, had made good use of the NHA MBS program “and I expect that their funding strategies will change as a consequence.”
“Given the differentials in funding costs via NHA MBS or unsecured long-term funding, I could see [an additional] 20 to 65 basis points in the cost of funding mortgages for the larger banks,” he said. “All else equal, we could see mortgage rates start to move up in unison.”
At the start of this year, after consultations with CMHC, Mr. Flaherty said the Crown corporation could guarantee a maximum of $85-billion worth of new NHA MBS this year. By the end of July, lenders had already issued $66-billion worth of the securities, compared to $76-billion during all of 2012. As a result, CMHC is imposing the $350-million cap on each issuer effective immediately, while it comes up with a formal allocation process this month that it will put in place for the final four months of the year.
The Crown corporation guarantees timely payment of interest and principal to investors in both types of securities, and charges the banks a fee for the service.
On its website, CMHC states that “MBS [have] helped to ensure a ready supply of low-cost funds for housing finance and to keep mortgage lending costs as low as possible for homeowners.”
Mr. Routledge said that smaller mortgage lenders don’t create enough NHA MBS to be materially affected by the new $350-million cap.
The amount of NHA MBS being issued shot up during the financial crisis, as banks sought cheaper sources of funds to continue lending mortgages. The securities are backed by pools of insured mortgages, and investors receive monthly principal and interest payments that stem from the payments homeowners make on the underlying mortgages. Banks sell the securities to investors, or to be used in the Canada Mortgage Bond program.