Canada’s impending housing collapse not in sight

LOWEST RATE MORTGAGEOTTAWA — Not so fast. The purported collapse of Canada’s housing market does not appear to be in sight, and any correction down the road could likely be a mild one.

Recent data have defied warnings from market watchers of an impending plunge — caused mainly by the impact of tighter mortgage rules imposed by the federal government last summer to slow the race by consumers for record-low lending rates.

The latest figures show sales of existing homes strengthened for a second month in May, up by a seasonally adjusted 3.6%, after declining 10% between July and March.

The Canadian Real Estate Association, in a report Monday, also said home prices were up 3.7% in May from the same month a year earlier, to a national average of $388,910.

For all of this year, CREA pegs the average price rise at 2.1%, to $370,900, weaker but far removed from correction territory. And in 2014, the average value is expected to rise 1.8% to $377,700, the Ottawa-based industry group said.

“Prices remain stable, perhaps maddeningly so for the legions of bubble mongers,” said Douglas Porter, chief economist at BMO Capital Markets.

Mr. Porter noted the May data show “housing remains on track for a fabled soft landing … making a mockery of talk of an imminent collapse.”

    Prices remain stable, perhaps maddeningly so for the legions of bubble mongers

While CREA still anticipates sales to fall 2.5% in total during 2013 compared to 2012 — to 443,400 units from 454,573 — home buying should rebound to 464,300 units in 2014, a jump of 4.7%.

Last July, Finance Minister Jim Flaherty announced stricter mortgage lending rules, the fourth such move in four years. The changes included a shorter amortization period for mortgages insured by government-owned Canada Mortgage and Housing Corp. in an effort to limit lending to those least able to afford it.

Mr. Flaherty went even further, subsequently warning banks not to pursue “race-to-the-bottom” rates for mortgages that could further pile on household debt beyond already record-high levels and reignite those concerns over a possible housing bubble.

Much of his expressed concern was focused on condominium building in Toronto and Vancouver, which it was feared might result in a glut and possible crash in those markets.

“History tells us that the impact from changes to mortgage insurance rules tend to be temporary, lasting up to three quarters,” said Diana Petramala, at TD Economics.

Ms. Petramala agrees Canada’s housing market appears to be headed for a soft landing, “with sales and prices growing at more sustainable levels than had been the case through 2010 and 2011.”

The spark that helped ignite the housing frenzy initially came from policymakers at the Bank of Canada. Led by then-governor Mark Carney, the bank slashed its trendsetting lending rate to 25 basis points in 2009 to spur spending by households and businesses coming out of the recession.

While that rate was subsequently raised to 1% in September 2010, it has not been adjusted since. Many economists do not expect that to change until at least late 2014.

“As long as interest rates stay low, affordability will remain relatively high. We have many times changed the mortgage rules, and we were attacking the wrong source of the problem,” said Charles St-Arnaud, an economist at Nomura Global Economics in New York.

History tells us that the impact from changes to mortgage insurance rules tend to be temporary

“The reason why the housing market was so strong was, basically, interest rates were so low. The issue was not the availability of credit, it was the price at which it was given,” he said.

“If you were to give the same availability but, let’s say, 200 basis points higher, I don’t think we would be here in terms of the housing market.”

Mr. Carney has also been adamant — along with Mr. Flaherty — that consumers need to tighten their belts, warning household debt posed the biggest threat to the Canadian economy.

That mantle of concern has been passed to Stephen Poloz, who on June 3 replaced Mr. Carney — soon to be the new Bank of England governor.

Mr. Poloz delivers his first public speech on Wednesday. Titled “Recovery: Rebuilding Confidence in Canada,” he is expected to touch on business and consumer spending during his address and a news conference that follows.

Gordon Isfeld | 13/06/17 | Last Updated: 13/06/17 4:51 PM ET
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Canadians are paying off mortgages quickly — so is Ottawa’s crackdown really necessary?

Surrey Mortgage BrokerCanadians end up paying off their mortgages in about two-thirds of the time originally intended, according to a new survey which questions whether Ottawa’s crackdown on the real estate market is needed.

The Canadian Association of Accredited Mortgage Professionals predicts Toronto faces an especially big slowdown, with construction to drop off more than 50%

A report by the Canadian Association of Accredited Mortgage Professionals released Wednesday paints us as a very conservative lot not in need of increased government regulation.

The group notes of the mortgages paid off in 2010-2013, the original amortization length was on average 17.9 years but ended up with an actual amortization length of 11.7 years.

Despite the fact Canadians pay off their mortgages quickly, the federal government has continually cracked down on amortization of insured mortgages it backs. The length of amortizations — a longer amortization lowers monthly payments and allows consumers to qualify for larger mortgages at the expense of paying more interest — has been dropped from a high of 40 years to the present 25 years.

Consumers may have gotten the message. Amortization lengths have shrunk since Ottawa started dropping the maximum length. From 2005-2009, mortgages paid off during the period had an average original amortization lengths of 19.9 years compared with an average actual amortization length of 12.8 years.

Now CAAMP is arguing that changes to government rules have actually gone too far and have resulted in a 15% decline in new home construction this year from highs reached in 2011 with a further 25% to 30% predicted by 2015, which would cost 150,000 jobs.

Garry Marr | 13/05/22 | Last Updated: 13/05/22 6:53 PM ET

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Transition Year Expected for BC Housing Market

Vancouver, BC – May 9, 2013. The British Columbia Real Estate Association (BCREA) released its 2013 Second Quarter Housing Forecast today.

BC Multiple Listing Service® (MLS®) residential sales are forecast to edge up 1.9 per cent to 68,900 units this year, before increasing a further 6.5 per cent to 73,400 units in 2014. The five-year average is 74,600 unit sales, while the ten-year average is 86,800 unit sales. A record 106,300 MLS® residential sales were recorded in 2005.

“Stricter mortgage credit regulation combined with slower economic growth has kept BC home sales at a cyclical low over the past three quarters,” said Cameron Muir, BCREA Chief Economist. “However, a faster growing economy is expected during the second half of the year and through 2014 which will support a growth trend in provincial housing demand.”

“The BC average home price forecast is revised upward for 2013, from a decline of 1 per cent to remaining unchanged, as a result of stronger than expected market conditions in Vancouver,” added Muir. The average MLS® residential price in BC is forecast at $515,800 this year, before rising 1.7 per cent to $524,500 in 2014.

BCREA 2013 Second Quarter Housing Forecast

First Time Buyer

1st time Home Buyer in new homeFew purchases cost more than buying a new home. While there are advantages to owning your own home versus renting, it’s important to understand how the mortgage qualifying process works before entering into this large investment. You want purchasing a home to be a better deal than renting. The process isn’t complex. In fact it can be broken down into six easy steps.

Step 1: The Initial Application

All home purchases begin with the filling out of a loan application. You’ll be asked to provide certain information such as your address, city and postal code. You will also need to supply your employer’s name, the position you hold and how much you earn annually. If you have additional sources of income, you want to supply this information as well.

Expect to supply information about how much you have available for a down payment and where that money will come from. You should also expect to give a ballpark figure as to how much money you are expecting to borrow.

This information will help the mortgage broker to evaluate what your needs are and to make suitable recommendations for which of the mortgage products out there best fit your requirements.

Step 2: The Qualification Process

During the qualification process, the information you supplied on your initial application is used to attract the lender your mortgage broker has determined will offer you the best value. It’s important that the mortgage broker takes care in how this information is presented. Proper presentation can make the difference between whether you get the best possible rate and terms or not.

The qualification process can often be a rapid one thanks to electronic submission. Often your mortgage broker has a response within hours. When the response is not the one desired, your mortgage broker will continue to negotiate on your behalf to ensure you get the best possible conditions. This may involve more than one lender so that the discount offered on your interest rate is the maximum possible.

Step 3: The Pre-Approval Process

Once you have been approved for a loan, your mortgage broker reviews the rate and term, payment frequency and amount, amortization and other issues with you. You need to be satisfied with the terms of the approval. If there are things that you want to change, your mortgage broker can work on this for you.

Once you are satisfied with the terms proposed in the approval, you will be issued a letter of commitment. This letter places your rate on hold for a certain period of time, which can be up to four months in some cases.

One of the major advantages of this pre-approval process is the fact that you know what you can afford, so you don’t waste your time looking for homes that are outside of the amount of money you’ve been approved to borrow. Meanwhile you have time to look for your home without worrying about whether rates will go up while you’re searching.

It’s important to understand that if interest rates come down, you’re not stuck with the higher interest rate that was quoted in the approval. You are never committed to actually borrowing the money. You’re just protected if interest rates go up.

Step 4: The Purchasing Process

Once you find the house that you want to purchase, it’s time to make an offer. Your realtor will negotiate this on your behalf. Once you have settled all the details, you are ready to submit the final loan application which stipulates exactly how much you will be borrowing.

Step 5: The Verification Process

Before you actually receive a disbursement on the mortgage, your approval will be further verified. Expect to supply information that verifies your income such as a job letter and a recent pay stub. Expect to provide bank statements that prove that you have the down payment in savings. Your mortgage broker should provide you with a list of all the different proofs that are necessary to prove to the lender that you have adequate reserves to keep up with your mortgage payments.

During the verification process, it may become apparent that you have less than 20% to place down against your home purchase. In this case, the lender will require CMHC or Genworth (GE) mortgage default insurance to protect the lender against loss if you default on your loan.

Step 6: The Closing Process

Until the purchase is registered legally, you don’t own the home. Closing involves transferring ownership on the property from the seller to the buyer. This transaction requires an attorney, preferably a notary or lawyer who specializes in real estate transactions.

The lender forwards closing instructions to your attorney who would then prepare all legal documents. You will meet in the attorney’s office and sign all the paperwork there. The lawyer will act as an escrow agent, receiving the funds from your lender. When the seller has signed the proper paperwork, the attorney will disperse the money to the seller or builder of your new home.

To get started call Darren Popoff at 604.818.9262 or Click Here for the Secure Application.

4 Credit Score Myths Busted

Your credit score is a three-digit number ranging from 300-900 that tells future lenders how risky it is to lend you money based on your history of making debt payments.

There are many misconceptions about what it takes to keep your score high. Henrietta Ross, the CEO of the Canadian Association of Credit (CACCS) to help us sort fact from fiction:

Myth 1: You must use major credit cards to build a good score.

Truth: If you’re unable to obtain a major credit card, there are other ways to build your credit history. Making regular payments on installment loans such as a car lease can positively affect your score, as do department-store cards and secure credit cards, which require a cash deposit in the amount of the credit limit.

Myth 2: You can’t make up for mistakes such as late payments.

Truth: It takes time, but your credit will become positive as you build consistency with timely payments, Ross says. How much time it will take depends on a number of factors, including how long the ‘late payment’ has been on your record and how long you’ve had the debt.

Myth 3: Paying cash boosts your score.

Truth: You need to use credit in order to demonstrate your ability to make payments. Using credit at least once every 30 days and making payments on time will keep you in good standing, says Ross.

Myth 4: I will not qualify for a mortgage if I’ve had a poor credit score.

Truth: Lenders look at your entire financial picture, including your

review your housing expense-to-income ratio, which is a comparison of your expected monthly mortgage payment with your gross monthly income.

For more information about how your credit score will affect your mortgage, please contact Darren at 604.818.9262!

Apply Now – 3 Simple Choices

You have many choices when it comes to choosing the right mortgage. Be rest assured that I will do the research to ensure that you are both educated and well informed so you can feel confident you are making the right decision. I work for you and not the lender, so your complete satisfaction is my top priority, and best of all my service is free to you. You can contact me anytime via phone at 604.818.9262 or email me at: darren@mortgagebydarren.com should you have any questions or concerns.

The mortgage application process can seem a bit overwhelming at first but be rest assured I will make it as simple as possible for you.  My schedule is also very flexible and I can work around your available time whether it be in the evenings or on the weekends.  This is another benefit of working with a broker.  We work around your schedule and will even come to you!

During the approval process I will keep regular contact and keep you informed of the progress. Certain lenders have 24 hour turn around and others may take a few days.  Again at anytime feel free to call or email me, I am here to help and available 7 days a week from 8am-9pm.

Now Lets get started on one of 3 ways:

  1. You can give me a call at 604-818-9262 and we can discuss your needs over the phone and I can take the details for your application
  2. Give me a call at 604-818-9262 and we can set up an appointment to meet in person.
  3. You can apply online through our secure mortgage application.  Click here to get started…

I look forward to working with you and getting your mortgage approved!

 

The Mortgage Process

Few purchases cost more than buying a new home. While there are advantages to owning your own home versus renting, it’s important to understand how the mortgage qualifying process works before entering into this large investment. You want purchasing a home to be a better deal than renting. The process isn’t complex. In fact it can be broken down into six easy steps.

Step 1: The Initial Application

All home purchases begin with the filling out of a loan application. You’ll be asked to provide certain information such as your address, city and postal code. You will also need to supply your employer’s name, the position you hold and how much you earn annually. If you have additional sources of income, you want to supply this information as well.

Expect to supply information about how much you have available for a down payment and where that money will come from. You should also expect to give a ballpark figure as to how much money you are expecting to borrow.

This information will help the mortgage broker to evaluate what your needs are and to make suitable recommendations for which of the mortgage products out there best fit your requirements.

Step 2: The Qualification Process

During the qualification process, the information you supplied on your initial application is used to attract the lender your mortgage broker has determined will offer you the best value. It’s important that the mortgage broker takes care in how this information is presented. Proper presentation can make the difference between whether you get the best possible rate and terms or not.

The qualification process can often be a rapid one thanks to electronic submission. Often your mortgage broker has a response within hours. When the response is not the one desired, your mortgage broker will continue to negotiate on your behalf to ensure you get the best possible conditions. This may involve more than one lender so that the discount offered on your interest rate is the maximum possible.

Step 3: The Pre-Approval Process

Once you have been approved for a loan, your mortgage broker reviews the rate and term, payment frequency and amount, amortization and other issues with you. You need to be satisfied with the terms of the approval. If there are things that you want to change, your mortgage broker can work on this for you.

Once you are satisfied with the terms proposed in the approval, you will be issued a letter of commitment. This letter places your rate on hold for a certain period of time, which can be up to four months in some cases.

One of the major advantages of this pre-approval process is the fact that you know what you can afford, so you don’t waste your time looking for homes that are outside of the amount of money you’ve been approved to borrow. Meanwhile you have time to look for your home without worrying about whether rates will go up while you’re searching.

It’s important to understand that if interest rates come down, you’re not stuck with the higher interest rate that was quoted in the approval. You are never committed to actually borrowing the money. You’re just protected if interest rates go up.

Step 4: The Purchasing Process

Once you find the house that you want to purchase, it’s time to make an offer. Your realtor will negotiate this on your behalf. Once you have settled all the details, you are ready to submit the final loan application which stipulates exactly how much you will be borrowing.

Step 5: The Verification Process

Before you actually receive a disbursement on the mortgage, your approval will be further verified. Expect to supply information that verifies your income such as a job letter and a recent pay stub. Expect to provide bank statements that prove that you have the down payment in savings. Your mortgage broker should provide you with a list of all the different proofs that are necessary to prove to the lender that you have adequate reserves to keep up with your mortgage payments.

During the verification process, it may become apparent that you have less than 20% to place down against your home purchase. In this case, the lender will require CMHC or Genworth (GE) mortgage default insurance to protect the lender against loss if you default on your loan.

Step 6: The Closing Process

Until the purchase is registered legally, you don’t own the home. Closing involves transferring ownership on the property from the seller to the buyer. This transaction requires an attorney, preferably a notary or lawyer who specializes in real estate transactions.

The lender forwards closing instructions to your attorney who would then prepare all legal documents. You will meet in the attorney’s office and sign all the paperwork there. The lawyer will act as an escrow agent, receiving the funds from your lender. When the seller has signed the proper paperwork, the attorney will disperse the money to the seller or builder of your new home.

That’s how the mortgage loan and buyer process works.

Even in a real estate slump, Canadians lured into bidding wars

People still willing to jump into real estate bidding wars might want to ask themselves why they want to be part of such a buying frenzy in this softening market.

It always costs you, if you are buying. But apparently some Canadians are still willing to do the bidding of organized real estate and go to war over price.

A new survey from Bank of Montreal finds 72% of buyers are unwilling to get into a bidding war. Among first-time buyers, 37% are willing to go “over budget,” BMO said in a news release Tuesday.

Taken the other way, there are still 28% of people ready to play this shell game and it’s even higher among the novices who might not be expected to know better.

First of all, people need to understand that the whole idea of a so-called asking price is nothing more than an artificial construct. It’s meaningless, many times just a marketing game to draw people into the home.

There was a case two years ago where an agent purposely listed a home for $1 in Toronto to attract interest. That would be a heck of a market crash.

Real estate sellers have the option of listing something for sale at a certain price with zero obligation to sell it at that price. I’d love to see a retailer try that trick.

In the $1 sale, no buyer made an offer for what the seller really wanted and no sale took place — at least based on that marketing trick.

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“All that really matters is the actual sale price,” says noted housing bear Dave Madani, an economist with Capital Economics who has called for a 25% reduction in Canadian home prices.

The problem for would-be buyers is an auction process that leaves them blind to what the other guy is bidding.

It’s not a guy with a gavel yelling out “do I hear” this much for the house. It’s an agent telling you you are not the only bidder and you should come in with your “best price” or potentially lose the property.

You could have a home listed for $500,000, you bid $525,000 because there is one other offer and never find out that the other offer was for $480,000.

The multiple offer game creates an inflationary environment that these days the real estate market just might need. The latest statistics from the Canadian Real Estate Association show average prices in Canada up 2.2% from a year ago. March sales were off 15.3% from a year ago and active listings are still climbing in many markets.

Of course, real estate is a very local game. And many of you just want that property on the part of the street that is in the school district you crave.

“In a housing boom, when you’ve got multiple people bidding, the buy side becomes crowded. Prices can lose touch with fundamentals. Bidding wars are part of the housing bubble narrative,” said Mr. Madani.

Laura Parsons, a mortgage expert at Bank of Montreal, said there are number of variables that produce a bidding war and that includes a shortage of listings.

It’s called the winner’s curse

“If there is not a lot to choose from, that creates an anxiety in buyers,” said Ms. Parsons. “You can have variables like the time of year, your need to get your kids in school.”

The online survey was conducted among 2,000 Canadians 18 and older between Feb. 25 and March 3 and is considered accurate to within 2.2 percentage points, 19 times out of 20 based on most studies of that size.

“[Buyers] can be very anxious. You know when you see a sale on in the mall at Christmas, everybody wants it and they come and say after ‘why did I buy this’,” says Ms. Parsons.

There is something called game theory in economics which Mr. Madani says causes people to bid on something just for the sake of winning. “It’s called the winner’s curse,” he says.

If you’re part of a bidding war, maybe you need to ask if you’ve put a hex on yourself based on today’s real estate market.

The Financial Post – Garry Marr | 13/04/23 | Last Updated: 13/04/23 6:34 PM ET
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