Tuesday, October 27, 2015

Get ready: Realtors say Liberals to extend land transfer tax powers across Ontario

More from Garry Marr | @DustyWallet
Ontario realtors say Kathleen Wynne and the Liberal government are breaking an election promise by giving every municipality province-wide the power to charge a Municipal Land Transfer Tax.
Canadian PressOntario realtors say Kathleen Wynne and the Liberal government are breaking an election promise by giving every municipality province-wide the power to charge a Municipal Land Transfer Tax.

Ontario realtors say the government is moving ahead with a plan that will allow municipalities across the province to follow Toronto’s lead and implement their own land transfer tax.
The Ontario Ministry of Municipal Affairs and Housing is giving every municipality province-wide the power to charge a Municipal Land Transfer Tax (MLTT), the Ontario Real Estate Association says.
“Ontario home buyers are already charged a provincial land transfer tax, so by adding a municipal tax, they’re essentially doubling the tax burden on Ontario families,” said Patricia Verge, president of OREA, in a release. “If the Ontario Liberals follow through with this plan, homebuyers will be forced to pay $10,000 in total land transfer taxes on the average priced home in Ontario, starting as early as next year.”
The minister of municipal affairs and housing denied any decision has been made to extend the taxing power.
“In 2014 at the AMO conference, I was asked whether I would consider looking at municipal revenue tools as part of the Municipal Act review. I gave the shortest answer possible, ‘yes.’ We are currently reviewing the Municipal Act. No decisions have been made,” said Ted McMeekin. “As part of the review of the Municipal Act, we have been meeting with the municipal sector to discuss how municipalities can better utilize their existing financial tools and determine what, if any, barriers exist in the Act. During consultations, we have been hearing a variety of opinions from the sector with respect to revenue tools. It is not too late to submit your comments and ideas – we are accepting comments until October 31, 2015.

Economist says Bank of Canada and investors shorting Canadian housing should look closer at numbers

Image result for bank of canada 
Garry Marr | October 26, 2015
It was just four Toronto condominium developers and questionable statistical reporting that led to news earlier this year about a glut of high-rise units in Canada’s largest market, says a new report.
Canadian Imperial Bank of Commerce deputy chief economist Benjamin Tal says in a report out Monday that even the Bank of Canada has been fooled by the raw numbers about unabsorbed or unsold units that once broken down appear to be a bit deceiving.
“The big question is to what extent the condo markets in (Vancouver and Toronto) are overshooting. The answer, of course, is multi-dimensional, but a good starting point is to assess the trajectory of recently completed and unabsorbed units,” said Tal, in his report. “An increase here suggests that developers are finding it increasingly hard to sell completed units — usually a first sign of troubles ahead.”
In Vancouver, the number of unabsorbed units fell over the past year from just over 2,000 to the current 1,100 indicating an improving situation, he writes.
But Tal says towards the end of 2014 and early 2015 there was a notable increase in the number of completed condominiums in the greater Toronto area. In a record housing year in 2012, the GTA saw just under 50,000 housing, 30,000 condos.
So what happened? Canada Mortgage and Housing Corp. decided to register 10,000 condos in the month of January. Tal says that according to CMHC, the GTA has seen no less than 26,000 condo completions in the first half of this year — three times more than the level seen in previous years.
“Registering a completion is more art than science, as different data providers use different criteria,” said Tal, noting other data providers such as RealNet have chosen to distribute their completion count more evenly — a fact that resulted in a less volatile count of unabsorbed units.
What happened using the CMHC data is that between December 2014 and May of this year, the number of unabsorbed units rose in Toronto from less than 1,000 to close to 3,000 — a level that is even higher than those seen in the early 1990s.
“This meteoric ascent was not only highlighted by the Bank of Canada as a sign of vulnerability but also by various short-Canada investors — using that surge as the ultimate illustration of the bubbly Toronto condo market,” said Tal, noting that since the numbers first came out completed and unabsorbed units fell over 800 in a month.
Now that the CMHC’s completed units have leveled off, it says there about 2,000 unabsorbed units in the GTA which is the same numbers that RealNet is now reporting— still a high level but not nearly as dramatic as 3,000.
So where did CMHC’s original numbers go awry? About half of the completed and unabsorbed units are in city of Toronto, but more importantly one third of all unabsorbed units, were constructed by four developers. And five projects coming on at once accounts for about one quarter of the unabsorbed units on the market today.
“To be sure, the GTA’s condo market will be tested as interest rates start rising in the coming years, and increased resale activity from domestic condo investors will result in excess supply and some downward pressure on prices,” says Tal. “But for now, those who look at the rise in unabsorbed units as a sign of increased vulnerability are barking up the wrong tree.”

Monday, October 26, 2015

CMHC May Slow its Policy Tightening

For over six years CMHC has been following a Finance Department directive to de-risk its mortgage insurance operations. In doing so, it has fashioned a more stable housing market, albeit one with less consumer choice and higher funding costs for lenders.

But enough may finally be enough — that is, if we’re to read into CEO Evan Siddall’s recent comments.

At CMHC’s annual public meeting Siddall was asked if CMHC had done enough to limit its risk exposure. He responded, “In a word, yes.”

He went on to note that CMHC is “very comfortable” with its reduction of risk and its current level of market share.

While Siddall reinforced that CMHC’s ongoing goal is to “align risk” with its mandate, one gets the distinct impression that any further rule tweaks should be far less impactful than some of its prior rule changes (which included cutting back amortization maximums, reducing maximum LTVs, eliminating products and so on).

By the Numbers…
The insurer’s annual report revealed an array of notable stats. Among them:

  • Average insured loan outstanding: $139,221 (as at Dec. 31, 2014)
  • Estimated policies in force: ~3.9 million (i.e., $543 billion of insurance in force/$139,221 average loan outstanding)
  • Capital to pay claims: Over $16.1 billion ($10.6 billion in reserves + $5.5 billion in unearned premiums)
  • Capital position: 343% of OSFI’s required minimum, a big jump from even one year ago (Put another way, CMHC’s capital to pay claims is about 3% of its mortgage exposure, double the buffer that Fannie Mae had during the height of the U.S. bubble…and growing.)
  • 2014 Profit: CMHC earned $2.6 billion in 2014 vs. $1.8 billion in 2013, largely due to securities gains
  • Earnings for taxpayers: CMHC has contributed $21 billion to government revenues over the last 10 years
  • Exposure: CMHC’s insurance-in-force fell 2.5% from $557 billion in 2013 to $543 billion in 2014 (it will likely drop another $10 billion in 2015, suggests CMHC)
  • Arrears: Delinquencies remained at about 0.35% in 2014
  • Borrower metrics: The average CMHC-insured homeowner had 46% equity, a 25.8% gross debt service (GDS) ratio and a 745 credit score
CMHC’s severity ratio (i.e., its “actual loss” on default, net of recoveries from the borrower and sale of the property) is 30.1% of the original loan amount. This number has been fairly stable over time, running between 30% to 35%. Genworth’s severity metrics are roughly the same.

CMHC doesn’t publish its actual loss per claim (it really should), but The Globe and Mail reports that its average claim is around $70,000.

On a side note, it’s tempting to point to relatively high home prices in some cities as an extra source of risk. But only 3% of CMHC’s book has an outstanding loan amount over $600,000. Moreover, the U.S. crisis highlighted a phenomenon that was really quite interesting. Freddie Mac statistics showed that the larger the loan, the lower the severity ratio.

Speaking of the U.S., if you hypothetically applied U.S.-housing-crisis-style losses (over 45 cents on the dollar) to CMHC, its average loss per default could exceed $100,000 per paid claim. At that rate, back of the napkin calculations suggest it would take over a 4% default rate to burn through its capital. That’s over four times the all-time high arrears rate at CMHC — almost an unimaginable disaster scenario…from a Canadian perspective, that is.

Sidebar: Siddall stated that there is “no progress” on lender risk sharing to report (e.g., lender insurance deductibles). CMHC continues to evaluate it, however.

Broker Market Share UP and Continuing to Grow!!!

Image result for bank vs brokerFirst-quarter market share data is in and the numbers are strong. Volumes in the mortgage broker channel are up 21% from the same time last year, according to D+H data provided by sources.
The split of variable-rate mortgages increased noticeably as well, to roughly 28% of brokered mortgages at the end of March. That’s almost a three-year high. Variable mortgages had their biggest share back in May 2011 (our records go back six years), when roughly 44% of broker customers chose floating-rate mortgages.
Here’s a look at the market share for leaders in the broker space as of first-quarter 2015…

Rank  Lender Market Share* 12 Mo
1 Scotiabank 17.4% -80 bps
2 First National 12.8% -180 bps
3 Street Capital 9.1% -100 bps
4 MCAP 8.3% +170 bps
5 Home Trust 7.3% -280 bps
6 RMG Mortgages 6.3% +220 bps
7 TD Canada Trust 6.1% -200 bps
8 Merix Financial 6.1% +100 bps
9 National Bank 4.9% -20 bps
10 Equitable Bank 4.5% +100 bps
Quick takes:
  • The market titans, as a group, aren’t producing like they used to. Overall market share by the top 5 lenders continued to fall, reaching 54.9% in Q1. That’s down from 57.3% in Q4, and the lowest total since we started tracking this data in 2010.
  • If you combine MCAP with its RMG Mortgages division, it amounts to the #2 lender in the broker channel. Both lenders are still on a tear, up 170 bps and 220 bps, respectively. They continue to benefit from the success of their “less-frills” mortgages, which continued to boast some of the lowest rates in the business.
  • Home Trust slipped significantly thanks to a 38% plunge in its Accelerator prime mortgage business (caused in part by mediocre rates).
  • TD Canada Trust’s share also continued to dive. It is now almost half of its 12% mark in Q4 2013. But TD’s vastly improved underwriting system is not yet live nationwide. Once it is, it should combine with TD’s improved rates, better buydown system and new compensation promotion to regain share.
  • Outside the top 10, the biggest movers were B2B Bank (190% growth y/y) and XCEED Mortgage Corp. (415% growth y/y)

Millennials are avoiding credit cards, and it’s doing them no favours

Bobbi Rebell, Reuters | October 1, 2015 | Financial Post
NEW YORK — Millennials get plenty of recognition for frugality and their desire to share everything from cars to clothes, but they also have the lowest average credit score of any generation, according to a new study.
The average millennial credit score is 625, and 28 per cent of them are ranked below 579, says NerdWallet, a personal finance website. In the world of credit scores, anything above 660 (out of 850) is considered good.
Based on millennial credit habits, those scores may not improve.
Among the key issues: Some millennials (18- to 34-year-olds) are shunning credit cards completely after hearing so many debt-related horror stories from the financial crisis. Others are applying for the wrong cards and getting rejected.
“Millennials are misunderstanding, or are simply unaware of, the benefits of credit cards,” says Sean McQuay, NerdWallet’s resident credit card expert.
A recent study by Experian found that millennials are making student loan debt more of a priority. That’s in contrast to the previous generation, Gen X, which prioritized getting credit cards.
About a third of millennials have never even applied for a credit card, NerdWallet says. That means they are not building credit and will have a hard time when they need a credit history.
Millennials’ avoidance of getting into the credit card game will cost them in the long run. For example, you need a solid credit score to rent an apartment, get the best insurance rates or just get a loan.
Credit scores are even sometimes used to vet job candidates these days. Credit history is key for making grownup purchases – and the length of that history is a big part of your credit score.
The good news is that the majority of millennials have applied for a credit card. But when they do apply for credit, about half (48 percent) are motivated by an advertisement or promotion, according to NerdWallet’s research. That can lead to a bad fit.
For example, a millennial who doesn’t drive should not apply for a gas card. Credit cards are not one size fits all.
Ironically, NerdWallet’s study found that millennials with the lower FICO scores – between 300 and 579 – are applying for credit the most. Not surprisingly, they also get approved less frequently.
Getting credit for the first time needs to be done strategically. Here’s why: when a consumer applies for a new credit card, his credit score gets what is called a “hard” credit inquiry. The more inquiries a consumer has, the riskier he or she appears to be to lenders, and that in turn lowers his or her credit score. If you are starting out cold with no score, that gets amplified.
“A good rule of thumb is to wait six months to a year between card applications,” says McQuay.
NerdWallet recommends Millennials take advantage of the free FICO scores now offered by many credit card issuers. A full list can be found here.
Other potential sources for this information for some student borrowers include Sallie Mae, along with credit counsellors.
A common pitfall to avoid: store credit cards, which often come with an initial discount off items purchased. “They say ‘Do you want to save 10 per cent?’ and my answer is always ‘only if you don’t run my credit’ and that ends the conversation,” says Cary Carbonaro, author of The Money Queen’s Guide.
Your credit score goes down the more you shop for credit and keep adding outstanding credit lines, Carbonaro notes.
Carbonaro’s advice is to apply for low-limit cards and charge small amounts on a regular basis. Pay off your bills every month and slowly build a credit score.
Be careful of rewards cards, too. Or at least do the math before you sign up. The average annual fee on a reward card is $58. The average reward rate is 1.14 cents per point. You have to spend $5,088, just to earn back your annual fee. If that’s not likely to happen, it is better to go for the no-fee card, especially since almost one in five people did not redeem any of their rewards last year.
Paying cash for everything may sound great. But, like it or not, you need credit to establish yourself in the financial world. It’s better to reward yourself with a strong credit history.