Tuesday, December 19, 2017

Home sales seen to fall more than 5% as new mortgage rules kick in



Home sales seen to fall more than 5% as new mortgage rules kick in
Canadian Real Estate Association cuts forecast, saying tougher rules on qualifying for a mortgage will erode home affordability
 Image result for home sales go down
TORONTO — The Canadian Real Estate Association has cut its home sales forecast for next year due to the impact of tighter mortgage regulations that come into effect New Year’s Day, which are expected to rein in spending for some buyers.
CREA said in an updated projection Thursday the banking regulator’s revised mortgage underwriting guidelines, which include a stress test for uninsured mortgages, will reduce sales activity across the country, particularly in and around Toronto and Vancouver.
The association now forecasts a 5.3 per cent drop in national sales to 486,600 units next year. That new estimate shaves about 8,500 sales from its previous 2018 forecast.
The national home price is expected to slip by 1.4 per cent in 2018 to $503,100.
“With some homebuyers likely advancing their purchase decision before the new rules come into effect next year, the ’pull-forward’ of these sales may come at the expense of sales in the first half of 2018,” CREA said in a statement.
“Meanwhile, other potential homebuyers are anticipated to stay on the sidelines as they save up a larger down payment before purchasing and contributing to a modest improvement in sales activity in the second half of 2018.”
In November, the number of homes sold through its Multiple Listing Service rose by 3.9 per cent compared with October, led by a 16 per cent sales spike in the Greater Toronto Area.
Sales were up 2.6 per cent from last November, marking the first year-over-year increase since March. That helped send the national home price up 2.9 per cent, year-over-year, to $504,000.
The number of newly listed homes rose 3.5 per cent in November, which reflected a large increase in new supply across the GTA.
In October, the Office of the Superintendent of Financial Institutions announced the final version of its revised guidelines, called B-20. The new rules, which come into effect on Jan. 1, require would-be homebuyers to prove they can still service their uninsured mortgage at a qualifying rate of the greater of the contractual mortgage rate plus two percentage points or the five-year benchmark rate published by the Bank of Canada.
CREA argues the new guidelines make it tougher for potential buyers with more than a 20 per cent down payment to qualify for a mortgage. These low-ratio mortgages comprise the vast majority of Canadian mortgage originations, it added.
The association also narrowed its forecast for national sales activity this year. It expects sales to decline four per cent to 513,900 units in 2017 due to weak activity in Ontario, after the province in April announced measures such as a foreign buyers tax to cool the market.
However, the association expects the national average price of a home to rise this year to $510,400, up 4.2 per cent compared to 2016.
While November sales activity in the Greater Toronto Area was down significantly compared to a year earlier, other large markets posted annual gains, including Greater Vancouver and the Fraser Valley, Calgary, Edmonton, Ottawa and Montreal.
BMO economist Robert Kavcic noted that the adjustment in the Toronto market is ongoing.
“But strong underlying supply-demand fundamentals should prove supportive next year once the remaining froth gets worked off,” he wrote in a note to clients.
“In all likelihood, Bank of Canada rate hikes and the coming rule changes from OSFI should keep the froth from returning. Elsewhere, look for continued strength in Ottawa and Montreal, stability in Alberta, and an ongoing supply-demand struggle in Vancouver.”
http://business.financialpost.com/real-estate/mortgages/crea-cuts-2017-2018-forecast-due-to-incoming-tighter-mortgage-rules

Monday, December 18, 2017

Debt-to-household-income ratio rises in third quarter, household net worth



Debt-to-household-income ratio rises in third quarter, household net worth

The Canadian Press Dec 14 2017
 Image result for debt

OTTAWA — Sky-high debt loads are one of the central bank governor's top concerns, he said Thursday after data showed the amount Canadians owe relative to their income hit a new high in the third quarter.

Statistics Canada reported that household credit market debt as a proportion of household disposable income increased to 171.1 per cent, up from 170.1 per cent in the second quarter. That means there was $1.71 in credit market debt, which includes consumer credit and mortgage and non-mortgage loans, for every dollar of household disposable income.

Bank of Canada governor Stephen Poloz said in a speech in Toronto that high debt levels are one of the things that keeps him awake at night because they make the economy as a whole more sensitive to higher interest rates than in the past.  

"These vulnerabilities are elevated, and are likely to remain so for a long time," he said.

"Remember, it took years for these vulnerabilities to build up in the first place."

The central bank has raised interest rates twice this year due to the strong economy. Since the second increase in September, it has held the rate steady signalling it will proceed with caution.

Benjamin Reitzes, Canadian rates and macro strategist at the Bank of Montreal, said the upward trend in household debt continues unabated.

"And, with homebuyers rushing to get into the market ahead of the new OSFI rule change that takes effect on Jan. 1, 2018, we could see a further increase in Q4," Reitzes wrote in a report. 

"However, that suggests we could see some flattening out of the ratio in 2018 — though don't bet on it as housing has been persistently resilient."

Household debt is often cited as a key risk to the Canadian economy by the Bank of Canada and others.

In a report last month, the OECD said high house prices and associated debt levels remain a substantial financial vulnerability in Canada.

"A disorderly correction would adversely impact growth and could threaten financial stability," the organization said.

Statistics Canada said the household debt service ratio, measured as total obligated payments of principal and interest as a proportion of household disposable income, was relatively flat at 13.9 per cent, while the interest-only debt service ratio was 6.3 per cent, down from 6.4 per cent in the previous quarter.

The Bank of Canada has raised its key interest rate target twice this year, moves that have led to increases in the prime rates at the country's big banks used to set loans like variable-rate mortgages.

Royal Bank economist Josh Nye noted the debt service ratio will increase as the Bank of Canada continues to gradually raise interest rates.

"However, the prevalence of fixed rate mortgage debt means households won't feel the increase all at once," Nye wrote.

"Rather, as today's data showed, the debt service ratio is likely to rise only gradually."

Total household credit market debt grew to $2.11 trillion in the third quarter, up 1.4 per cent from the previous quarter. The increase came as mortgage debt increased 1.5 per cent to $1.38 trillion, while consumer credit rose 1.2 per cent to $620.7 billion.

Meanwhile, the total net worth of the household sector edged down 0.1 per cent to $10.61 trillion in the third quarter.

The move lower was due to a drop in home values as housing resale prices weakened. The value of household financial assets edged up 0.1 per cent.
https://ca.yahoo.com/

Thursday, December 14, 2017

CREA slashes its 2018 home-sales forecast due to tighter mortgage regulations


CREA slashes its 2018 home-sales forecast due to tighter mortgage regulations

Sales activity across the country, the association says, will be reduced by OFSI’s revised mortgage underwriting guidelines.


The Canadian Real Estate Association now forecasts a 5.3-per-cent drop in national home sales to 486,600 units next year.
The Canadian Real Estate Association now forecasts a 5.3-per-cent drop in national home sales to 486,600 units next year.  (Bernard Weil / Toronto Star file photo)  
The Canadian Real Estate Association (CREA) has cut its home sales forecast for next year due to the impact of tighter mortgage regulations that come into effect New Year’s Day, which are expected to rein in spending for some buyers.
CREA said in an updated projection Thursday the banking regulator’s revised mortgage underwriting guidelines, which include a stress test for uninsured mortgages, will reduce sales activity across the country, particularly in and around Toronto and Vancouver.
The association now forecasts a 5.3-per-cent drop in national sales to 486,600 units next year. That new estimate shaves about 8,500 sales from its previous 2018 forecast.
Read more:
CREA expects Canadian home sales to drop to three-year low

“With some homebuyers likely advancing their purchase decision before the new rules come into effect next year, the ‘pull-forward’ of these sales may come at the expense of sales in the first half of 2018,” CREA said in a statement.
“Meanwhile, other potential homebuyers are anticipated to stay on the sidelines as they save up a larger down payment before purchasing and contributing to a modest improvement in sales activity in the second half of 2018.”
In November, the number of homes sold through its Multiple Listing Service rose by 3.9 per cent compared with October, led by a 16-per-cent sales spike in the Greater Toronto Area. Sales were up 2.6 per cent from last November, marking the first year-over-year increase since March. That helped send the national home price up 2.9 per cent, year over year, to $504,000.
The number of newly listed homes rose 3.5 per cent in November, which reflected a large increase in new supply across the GTA.
In October, the Office of the Superintendent of Financial Institutions (OSFI) announced the final version of its revised guidelines, called B-20. The new rules, which come into effect on Jan. 1, require would-be homebuyers to prove they can still service their uninsured mortgage at a qualifying rate of the greater of the contractual mortgage rate plus two percentage points or the five-year benchmark rate published by the Bank of Canada.
CREA argues the new guidelines make it tougher for potential buyers with more than a 20-per-cent down payment to qualify for a mortgage. These low-ratio mortgages comprise the vast majority of Canadian mortgage originations, it added.
The association also narrowed its forecast for national sales activity this year. It expects sales to decline 4 per cent to 513,900 units in 2017 due to weak activity in Ontario, after the province in April announced measures such as a foreign buyers tax to cool the market.
However, the association expects the national average price of a home to rise this year to $510,400, up 4.2 per cent compared to 2016.
While November sales activity in the Greater Toronto Area was down significantly compared to a year earlier, other large markets posted annual gains, including Greater Vancouver and the Fraser Valley, Calgary, Edmonton, Ottawa and Montreal.
BMO economist Robert Kavcic noted that the adjustment in the Toronto market is ongoing.
“But strong underlying supply-demand fundamentals should prove supportive next year once the remaining froth gets worked off,” he wrote in a note to clients.
“In all likelihood, Bank of Canada rate hikes and the coming rule changes from OSFI should keep the froth from returning. Elsewhere, look for continued strength in Ottawa and Montreal, stability in Alberta and an ongoing supply-demand struggle in Vancouver.”

Thursday, November 23, 2017

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