The affordability fight

General Robyn McLean 19 Jun

What we’re really up against…great insight by our friends at FNAT.

A new report out of the University of British Columbia says millennials – who make up the bulk of the highly coveted first-time buyer cohort – are still wildly priced out of the housing market.

The report, titled “Straddling the Gap”, says 25 to 34 year-olds are stuck between high home prices, rising rents, stagnant wage growth and the threat of rising interest rates.  It says that – over the next decade, on a national basis – average home prices would have to drop by more than $220,000 (about half their current value), OR wages would have to increase by more than $93,000 a year (about double their current level) in order for housing to be affordable.

In a hot market, like Vancouver, prices would need to drop by about 75%, OR wages would need to increase by about 400%.

Over the past 40 years the home-price-to-income ratio has risen from about 4 to 1, to more than 10 to 1.  Millennials are facing 13 years of saving in order to accumulate a 20% down payment, according to the report.  Their parents and grandparents typically had to save for just four years.

The UBC report comes as the City of Montreal is finalizing a proposed by-law that, the mayor says, will address affordability concerns.  The Montreal market has been picking up steam.  According to CMHC, sales are outpacing new listings and there is evidence of overheating.

Montreal mayor Valérie Plante is worried rising prices are forcing people off the island and into the suburbs.  A recent study shows 24,000 people left Montreal for outlying neighbourhoods between July 2017 and July 2018.

Montreal’s new by-law would force developers to set aside as much as 20% of new units for affordable housing, social housing or family-sized units.  The law is set to take effect 2021.

Jun 17, 2019
Be the expert
First National Financial LP

May Shows Signs of Improvement In BC and Alberta

General Robyn McLean 19 Jun

Some hopeful insight by DLC’s Dr. Sherry Cooper. Hopefully there’s more to come! 
Statistics released late last week by the Canadian Real Estate Association (CREA) show that national home sales increased in May. Together with monthly gains in the previous two months, activity in May reached its highest level since early last year when the new B-20 stress testing was introduced. While last month’s home sales stood 8.9% above the six-year low posted in February 2019, this latest uptick has only just returned May’s sales level to its 10-year historical average (see chart below). Nationwide, sales were up 1.9% month-over-month, and relative to a year ago, sales rose 6.7% marking the biggest year-over-year gain since the booming summer of 2016.

Sales were up in only half of all local markets, but that list included almost all large markets, led by gains in both the Greater Vancouver (GVA) and Greater Toronto (GTA) areas. There were encouraging bursts of activity in Victoria, Calgary and, to a lesser degree, Edmonton. Resale activity was up 24% from April in Vancouver, Victoria posted a 10% gain, and Calgary resales rose 6.6% month-over-month.

These are early signs that the cyclical bottom has been reached in that region of the country. Market conditions are still soft, though. Property values remain under downward pressure for now with the MLS Home Price Index down from a year ago in May in Vancouver (-8.9%), Calgary (-4.3%) and Edmonton (-3.7%). That said, the rate of decline moderated in Calgary and Edmonton, which is a further sign that these markets are stabilizing.

New Listings

The number of newly listed homes edged downward by 1.2% in May. With sales up and new listings down, the national sales-to-new listings ratio tightened to 57.4% in May compared to 55.7% in April. Based on a comparison of the sales-to-new listings ratio with the long-term average, almost three-quarters of all local markets were in balanced market territory in May 2019.

There were 5.1 months of inventory on a national basis at the end of May 2019, down from 5.3 in April and 5.6 months back in February. Like the sales-to-new listings ratio, the number of months of inventory is within close reach its long-term average of 5.3 months.

Housing market balance varies significantly by region. The number of months of inventory has swollen far beyond long-term averages in Prairie provinces and Newfoundland & Labrador, giving homebuyers in those parts of the country ample choice. By contrast, the measure remains well below long-term averages for Ontario and Maritime provinces, resulting in increased competition among buyers for listings and fertile ground for price gains.

Home Prices

MLS® HPI data are now available on a seasonally adjusted basis in addition to the actual (not seasonally adjusted) figures. On a seasonally adjusted basis, the Aggregate Composite MLS® HPI edged down 0.2% in May 2019 compared to April and stood 1.4% below the peak reached in December 2018.

Seasonally adjusted MLS® HPI readings in May were up from the previous month in 12 of the 18 markets tracked by the index; however, home price declines in the Lower Mainland of British Columbia contributed to the monthly decline in the overall index. Markets where prices rose in May from the month before include Victoria (0.5%), Edmonton (0.2%), Saskatoon (0.4%), Ottawa (0.7%), Niagara (0.2%), Oakville (0.8%), Guelph (0.5%), Barrie (3.6%), Montreal (0.5%) and Greater Moncton (0.5%), with gains of 0.1% in the GTA and Regina. By contrast, readings were down from the month before in the GVA (-1.0%), Fraser Valley (-1.1%), the Okanagan Valley (-1.3%), Calgary (-0.1%) and Hamilton (-0.7%), while holding steady on Vancouver Island outside Victoria.

Trends continue to vary widely among the 18 housing markets tracked by the MLS® HPI. Results remain mixed in British Columbia, with prices down on a y/y basis in the GVA (-8.9%), the Fraser Valley (-5.9%) and the Okanagan Valley (-0.7%). Meanwhile, prices edged up 1% in Victoria and climbed 4.7% elsewhere on Vancouver Island.

Among Greater Golden Horseshoe housing markets tracked by the index, MLS® HPI benchmark home prices were up from year-ago levels in Guelph (+5.7%), the Niagara Region (+5.4%), Hamilton-Burlington (+3.4%), Oakville-Milton (+3.4%) and the GTA (+3.1%). By contrast, home prices in Barrie and District held below year-ago levels (-6.1%).

Across the Prairies, supply remains historically elevated relative to sales and home prices remain below year-ago levels. Benchmark prices were down by 4.3% in Calgary, 3.6% in Edmonton, 3.9% in Regina and 1.3% in Saskatoon. The home pricing environment will likely remain weak in these cities until demand and supply return to better balance.

Home prices rose 8% y/y in Ottawa (led by a 12.2% increase in townhouse/row unit prices), 6.3% in Greater Montreal (led by a 7.6% increase in condo apartment unit prices), and 2% in Greater Moncton (led by a 15.9% increase in apartment unit prices). (see Table 1 below)

Bottom Line: The Bank of Canada is counting on a rebound in economic activity in the current quarter and believes growth will accelerate further in Q4 and 2020. That should keep the Bank on the sidelines for some time. Currently, the markets are expecting the Federal Reserve to cut interest rates in July and to continue to do so in 2020. Indeed, President Trump is lobbying hard for rate cuts. It is unlikely that the Bank of Canada will follow the Fed unless the trade war with China worsens. Political pressure is mounting on the administration to reduce trade tensions. Trade uncertainty is the only thing right now that would derail the Canadian recovery.

Canadian Capital Market Update

General Robyn McLean 10 Jun

I love this guy…always an excellent straight-in-the eyes viewpoint on the Canadian Mortgage Market. Worth a read…especially if you’re in the biz!

Jun 10, 2019
Capital Markets update
Jason Ellis, Chief Operating Officer

It’s been many moons since my last post and I have definitely fallen out of the habit.  Today’s note is the result of relentless harassment by the mean girls in marketing and the fact that Friday’s double employment reports gives me something specific to talk about.


The Canadian employment report ain’t pretty, she just looks that way.  The headline number indicates a solid increase of 27,700 full time jobs compared to survey expectations of 5,000 and the unemployment rate fell from 5.7% to a 45 year low of 5.4%.  Unfortunately, the details are less impressive.  Self-employment jumped by 61,000 leaving declines of 13,000 and 21,000 jobs in the public and private sectors respectively.  The jobless rate decline was also wearing a little lipstick in the form of a two-tick drop in the participation rate.  Finally, the hours worked actually fell 0.3%.  Overall, I rate last Friday’s job report as a solid “meh”.

Meanwhile, down in ‘Merica, nonfarm payrolls rose by 75,000 jobs.  That’s well short of the 175,000 expected.  In addition, the prior two months were adjusted down by a combined 75,000.  Probably not a disaster considering an unemployment rate of just 3.6% but this could be worrisome if this is the beginning of a trend as employers start pumping the brakes on hiring as uncertainty related to trade tensions persist.

Monetary Policy

It’s unlikely the Fed will react to one payroll report but given the backdrop of a potential trade war and low inflation it won’t take much more to trigger a rate cut.  The Fed next meets on June 19th and the probability of a cut stands at 30%.  Perhaps more telling is that the probability of at least one cut by the September 18thmeeting is almost 100%.

The Bank of Canada has its next meeting on July 10thand the probability of a cut from the current overnight rate of 1.75% is just 10%.


5 year Government of Canada bonds are at a two year low of 1.30%.  For context, they were trading as high as 2.50% in November last year.  Before you start thinking we can’t possibly go lower from here, don’t forget that we spent most of 2015 and 2016 below 1.00% and bounced of 0.50% a couple of times.

10 year Government of Canada bonds are also touching two year lows at 1.45% after trading as high as 2.60% in November.  Back in 2016 they actually dipped just below 1.00% on a couple of occasions.

By comparison, US Treasuries are currently trading at 1.82% and 2.07% for 5 and 10 year terms respectively.


In residential mortgage securitization news, Merrill Lynch Canada launched at $780 million NHA MBS offering literally minutes ago.  This is Merrill’s first syndicated offering since December 2017.  A general lack of new MBS supply should help this deal fly off the shelf.  They must be confident…bringing a deal of that size on the first warm and sunny Friday of the season wouldn’t be my first choice.

Driving ’til you qualify might not go the economic distance

General Robyn McLean 3 Jun

An interesting & very valid perspective from our friends at FNAT!
Jun 3, 2019
First National Financial LP

The statistics tell us that the national average price of a home is falling in Canada.  Despite that, housing affordability is still a significant challenge for buyers, especially in the country’s bigger markets.

Affordability to remain a challenge

The latest report from one of the big banks projects prices will rise in all six of Canada’s major metropolitan areas this year.  The increases – on top of already inflated prices and coupled with rising interest rates – are expected to have the cost of ownership outpacing (what has been until recently) stagnant wage growth.

Drive ‘til you qualify

These upward cost pressures suggest the trend known as “drive until you qualify” is likely to continue – if not increase – especially in the regions around Vancouver, Toronto, Montreal and Ottawa.  But the idea of leaving town to save money on the cost of a home is not without its drawbacks.

Moving out of the city almost always requires commuting back into town for work, school or other activities.  Late last year Canada Mortgage and Housing Corporation released a report that examines the trade-off between location costs and commuting costs.

Unfortunately the study was confined to the Greater Toronto Area, which is probably the most extreme case in the country.  However the methodology can be applied to any metropolitan area and the findings are likely to be proportional, with the costs and drawbacks being relative to the commuting situation in any local market.

Commuting can drive away your savings

What the CMHC report found is that, in many instances, commuting costs can completely offset the savings of moving to a more affordable location.  Not surprisingly the report finds that commuting costs rise as the distance from the urban centre increases.  This negative relationship is well known and was first formalized by a German economist in the 19th century.  In several cases the CMHC research found that when the carrying costs of the lower priced suburban or exurban home were combined with commuting costs the amount matched or even exceeded the cost of buying in the city.

Your time is worth something

On a somewhat more abstract level there is also the consideration of what a person’s time is worth to them.  In a separate study, based on the 2016 census, Statistics Canada found that commutes of an hour or more each way are becoming more common.

Nearly 60% of these so-called “long commutes” are travelled in cars and take an average of 74 minutes.  That amounts to more than 12 hours being added to the work week.  At a rate of $27.36 an hour, which is the average wage in Canada, it amounts to $330.00 a week in unpaid, unproductive time.

There have also been several studies done on the negative effects of commuting on health and wellbeing.

There are good reasons to leave town

Of course there are reasons other than price for wanting to get out of the city: a quieter environment, more space, bigger home, bigger property.  These are genuine and legitimate considerations and desires.  But if the goal is to simply get a home at the lowest cost, buyers may be better served by staying in town and considering options like a smaller down payment or a longer amortization period.