Residential Mortgage Quarterly Review

General Robyn McLean 28 Jan

Some interesting insight on the last quarter and a look ahead from our friends at First National.

Residential Mortgage Quarterly Review – Q4 2020

Jan 18, 2021
First National Financial LP

After being on hiatus for a couple of quarters both the Canadian Real Estate Association and Canada Mortgage and Housing Corporation are back with their updates and assessments.  The federal housing agency remains cautious, but uncertainty has given way to confidence at CREA.

Market heats up as the weather cools

The realtors report that the rebound in the third quarter carried through into Q4 with record setting sales numbers and solid price growth in October and November.  CREA is projecting a national sales record for 2020, once the December figures are in.  Nearly 544,500 units are expected to change hands – an 11% increase over 2019.  The national average sale price is expected to exceed $568,000 – a 13% increase.

Strong demand to persist

The price acceleration is expected to continue through 2021 with the national average climbing another 9% to $620,000.  It comes down to the classic economic principle of supply and demand.  New listings have been significantly lagging sales.  That was the case before the pandemic and it is expected to continue even though CREA sees monthly sales volumes returning to closer to normal through 2021.

According to the realtors, low interest rates will likely support the higher prices.  The Bank of Canada has said it will hold its rates down until, likely, 2023, giving buyers some extra headroom on their purchase price.  Lately, the central bank has been signalling it might contemplate a further rate cut, if conditions warrant.

CMHC remains watchful

Canada Mortgage and Housing Corporation is maintaining its cautious view for the market.  The agency had forecast the possibility of serious price drops as a result of the pandemic.  As yet, that has not happened.  The agency’s latest Housing Market Assessment remains in the yellow, signalling a moderate, overall level of vulnerability.

Expanding demand, shrinking supply

As with the realtors, CMHC’s main focus is on shrinking inventories and rising prices.  The agency points to price increases that are not supported by economic fundamentals such as employment levels, income, inflation and immigration.  It says this “overvaluation” is reaching a critical threshold and will be closely monitored.

Market “overheating”, which CMHC uses as a gauge of supply and demand, remains at a low level of vulnerability nationally, despite a near record high sales-to-new listing ratio.  This is something of a technicality though.  The measure is above the agency’s critical threshold, but it has not been there for two consecutive quarters… yet.

“Price acceleration” remained a low risk largely because increases in spending on homes was the result of a shift in consumer preference to more expensive, ground-oriented units.

“Overbuilding” is also seen as a low vulnerability risk due to growing slack in the rental market, due to a COVID related slowdown in immigration.

The COVID wildcard

The coronavirus pandemic remains the greatest unknown.  Conventional wisdom has it that the roll out of vaccines will eradicate – or at least contain – the virus.  As jobs return, people get back to work, and immigration resumes the housing market is expected to return to normal as well.  Demand though, will likely be skewed by an ongoing desire for bigger spaces to accommodate the new-found preference for working from home.

Hopes for home ownership stay strong

General Robyn McLean 25 Jan

Some positives from our friends at First National. 

Jan 25, 2021
Be the expert
First National Financial LP

The desire for home ownership remains strong in Canada.  The latest home buying sentiment poll by one of the country’s big banks suggests nearly 60% of Canadians aspire to own a home.  Just over half of those people are looking for a detached home.

Affordability continues to be a key concern with roughly 60% of respondents saying homes in their area are unaffordable.  According to the survey the average home buying budget in Canada stands at $445,000.  The Canadian Association of Realtors (CREA) puts the average price of a home (all types) at $607,000.

Not surprisingly a significant portion of those polled – 45% – expect they’ll have to leave their current city to buy a bigger house.  Changing housing needs and the desire for larger properties are key drivers of the market right now.

There is some relief for these buyers in the form of on-going, low interest rates.  The Bank of Canada has made it clear it does not see rate increases happening until 2023.

With the swift roll-out of COVID-19 vaccines the economy is expected to make a strong, but choppy, recovery.

“Certainly, the earlier-than-expected arrival of the vaccine is a very positive development.  But we are starting off in a deeper hole,” says Bank of Canada Governor Tiff Macklem.

The central bank is looking for stability and sustainability in the recovery.  Analysts and market watchers expect to see the Bank cut its quantitative easing program before turning to interest rate increases as the economy improves and inflation moves, sustainably, back toward its 2% target.

10 Things to Look for in a Real Estate Agent

General Robyn McLean 23 Jan

Some great tips from our friends at REW. A good realtor is an absolute necessity in this market. If you need a referral, just ask!

Whether you’re buying or selling a home, you need the right kind of partner
By Justin Kerby Jan 23, 2021

Finding the right real estate agent to represent you can be challenging. There are many agents to choose from and almost every homeowner you meet will have a recommendation. It may take a bit of time, but interviewing and evaluating agents is worth every minute. Buying or selling a home is no small task, so you want to make sure you get the right person in your corner. Here are 10 essential things to look for in a real estate agent.

10 Things to Look for in a Real Estate Agent

  • An active listener
  • Good references or referrals
  • Honesty
  • Passion
  • Negotiation skills
  • Support
  • Effective Communication
  • Strong online presence
  • Decisions based on data
  • Experience

1. An active listener

You want to make sure that your agent listens to you when you speak and takes your wants and needs into full consideration. Your agent will be representing you in what’s sure to be one of the largest purchases or sales of your life, so making sure they understand your priorities is crucial. Look for an agent that remembers your wish list, contacts you when they see something that fits your needs, and who doesn’t monopolize your conversations. Good agents are typically good salespeople, but make sure they don’t try to sell you out of your own needs. If you don’t feel heard, it’s time to start looking for another agent.

2. Good references or referrals  

There’s no quicker way to find out what you can expect from your real estate agent than by contacting their previous clients. Some buyers and sellers skip this step when evaluating agents, but we’d highly recommend putting the time into getting honest feedback. Agents should come to listing appointments or meetings equipped with recent references, preferably in the cities you’re looking at.  If your potential real estate agent was referred to you by a friend or family member, make sure you ask them in detail about how the agent operated on each of the nine other points on this list.

3. Honesty, especially in difficult situations

This can be hard to gauge, but it’s extremely important to find an honest agent whose opinion you can trust. Your agent’s experience and opinion on making or accepting offers should be extremely valuable to you, but that will only be the case if you can fully trust them to operate in your best interest. You want to find an agent who will tell you their honest opinion even when they know their thoughts won’t be pleasantly received so that you can truly make decisions with as much information as possible. An honest agent that stands by his or her instincts is indispensable when making difficult decisions.

4. Passion

Unlike some of the other items on this list, it’s fairly easy to tell whether or not an agent is passionate about their job and the real estate industry in general. You want an agent who is excited about getting the highest offer possible on your listing, or who is combing through new listings before you are to find you your dream home. They should know the latest Canadian real estate market trends and truly relish discussing them with you. Buying or selling your home should be an enjoyable process, and a good real estate agent who is passionate about their job can make all the difference.

5. Negotiation skills 

They say a good real estate agent pays for him/herself, and the negotiation table is the place where this can really happen. Reading whether you should make a strong offer, a counter-offer, or a low offer requires a good understanding of both the seller’s situation and the listing agent’s negotiation style. On the other side of things, pricing a listing properly is somewhat of an art form that can set the stage for a successful negotiation and timely sale. Be sure that your agent has the negotiating skills needed to get you a good offer, or to get your offer accepted.

6. Someone with support 

If you’re a first time home buyer, you might be surprised by just how many people you’ll need to be introduced to during your home buying process. Your agent should be able to recommend a notary, a mortgage broker, a home inspector, and any other potential service providers you may need during the home buying process. An agent who has built these kinds of strong relationships is likely someone respected in the industry, which should give you confidence when they are negotiating on your behalf.

7. Effective communication skills

Take note of how your potential agent speaks to you, how they treat other people, and how they communicate with the world on social media. You want to make sure your agent will be able to sell effectively which requires the ability to communicate clearly. One of the best ways to judge this is to see how they sell themselves when you meet them. If they make a strong case for you to use their services, you’ve likely found a good communicator that will represent you well.

8. A strong online presence 

Don’t just evaluate your agent in person, you should also take a look at their online profiles to see how they’re selling themselves, and their client homes, online. Check to see if they have a following on social media, featured profiles on websites like REW, and where their previous listings were shared online. Typing their past sales addresses into Google Search will help give you an idea of where you can expect to see your property online if you list with them.

9. Decisions based on data 

When you speak to a potential agent, you want to make sure they’re backing up their opinions and suggestions with hard data. Select an agent that knows the market inside and out, and don’t be afraid to ask specific questions about your area of interest and see what type of knowledge and insight they possess. It doesn’t have to be a formal pop quiz, but making sure your agent knows the area you want to buy or sell in is important.

10. Experience

To be clear, we’re not suggesting you should only work with 20-year industry veterans. Experience is certainly not everything, but having it is an asset that you should take into account when evaluating potential agents. Your agent should be able to provide you with examples of past buying and selling experiences that lead to positive outcomes. You also want to make sure that they know and have good relationships with other industry professionals, as they could be negotiating with them in the near future on your behalf.

If you find an agent that ticks off the 10 boxes above, you should be in for a great experience.

Bank of Canada Expects to Hold Overnight Rates Steady Until 2023

General Robyn McLean 20 Jan

Breaking news & insight from Dr. Sherry Cooper, Chief Economist at Dominion Lending. 

The Bank of Canada, this morning, released its January Monetary Policy Report (MPR), showing they expect to keep overnight interest rates at its “effective lower bound” of 0.25% until 2023 (see chart below). To reinforce this commitment and keep interest rates low across the yield curve, the Bank will continue its Quantitative Easing (QE) program–buying $4 billion of Government of Canada bonds every week until the recovery is well underway. The central bank indicated it could pare purchases once the recovery regains its footing.

According to the Bank’s press release, “The Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In our projection, this does not happen until into 2023.” Officials are apparently optimistic about the economy’s prospects once the vaccine is sufficiently distributed and injected. There is no indication that they are planning additional measures to ease monetary policy.

This is particularly noteworthy for two reasons: 1) some economists had been speculating that the Bank would lower the overnight rate by 10-to-15 basis points to help mitigate the impact of continued and broadening lockdowns; and, 2) others thought the early development of the vaccine would trigger sufficient growth to warrant a rate hike in 2022. In the Bank’s current view, neither is likely to be the case. Why mess with a minute cut in already record-low interest rates when mortgage lending is still strong? The slow rollout of the vaccine and the mounting second wave of cases assure weak economic activity in Canada at least until the second half of this year.

As well, inflation remains surprisingly muted. In a separate release today, Stats Canada revealed that price pressures in Canada unexpectedly slowed in December as the country endured a new wave of lockdowns. After climbing to the highest since the pandemic in November, the latest reading shows price pressures are still well below the Bank of Canada’s 2% target. That’s consistent with the view from policymakers that inflation will remain subdued for some time.

The pandemic’s second wave has hit Canada very hard, and the vaccine rollout has been disappointing (see chart below). Today’s MPR predicts that the economy will contract in the first quarter of this year. Economic weakness could be exacerbated by the Canadian dollar’s strength, which moved to above 79 cents US following today’s BoC announcement. Ten-year yields edged up modestly as well.
Bottom Line

For the year as a whole, economic growth is expected to be around 4% in 2021, compared to a contraction of -5.5% last year. As the inoculated population grows, the Bank forecasts an acceleration in growth to just under 5% in 2022 and a more-normal 2.5% in 2023. According to the January MPR, “The medium-term outlook is stronger than in the October Report because of vaccines’ positive effects, greater fiscal stimulus, stronger foreign demand and higher commodity prices. Meanwhile, potential output has also been revised up, reflecting an improved projection for business investment and less scarring effects on businesses and workers. There is considerable uncertainty around the medium-term outlook for GDP and the path for potential output. Thus, while the output gap is expected to close in 2023, the timing is particularly uncertain.”

Concerning housing activity, the report said, “Demand for housing has continued to show resilience, despite increasing case numbers and tightening restrictions. Housing activity should remain elevated into the start of 2021, supported by low borrowing rates and resilient disposable incomes. Changes in homebuyers’ preferences have also played a role. For example, price growth has been strongest for single-family homes and in areas outside city centres,” shown in the chart below.

8 Things First Time Home Buyers Need to Know

General Robyn McLean 12 Jan

Some great tips for first-time homebuyers from our friends at REW.

Becoming a homeowner is exciting, but make sure you’re going in with eyes open
By Justin Kerby Dec 24, 2020

Thinking of buying your first home? Congratulations! Buying property is a milestone event worth celebrating, but before you pop the champagne – there are several things first-time homebuyers need to know before signing on the dotted line. If you educate yourself on each of these items below, you’ll put yourself in a good position with your first ever home purchase.

1. Closing isn’t cheap

Unfortunately, there is more to consider when purchasing a home than just the listing price or your offer. The Bank of Montreal suggests that you’ll want to budget between 3% and 4% of the purchase price (assuming it’s not a brand new home) to cover closing costs. That means that on a home that costs $400,000, you’ll be looking at between $12,000 and $16,000 in closing costs alone. That’s no small sum of money, so you can see why you need to keep closing costs in mind when creating a budget for yourself.

These numbers are estimates, and it’s likely your closing costs won’t be any more than 4%. Ratehub suggests they’re more likely to fall between 1.5% and 4% of the purchase price, depending on where you live, the kind of home you’re buying, and whether it’s a new build.

2. Know your subjects

The most common subjects you’ll see on a contract of purchase or sale include the following:

-Subject to obtaining satisfactory financing

-Subject to receiving and approving a property disclosure statement

-Subject to receiving and approving an inspection report

-Subject to receiving and approving a title search

-Subject to receiving and approving all strata documents

While these are the most commonly used, an offer can really be subject to just about anything you’d like, just don’t expect sellers to adhere to anything unreasonable. Talk to your Realtor about which subjects you should include with your offer, and study the most frequently asked questions about subject removal so you can bring your own ideas to the table.

3. The available mortgage options

First time home buyers should be intimately familiar with the different types of mortgages available. Speak to your lender about variable and fixed-rate mortgage options, and decide which kind of mortgage fits your comfort level.

You’ll also need to shop around to find an interest rate you’re comfortable with. A lower rate means more money goes towards the principle mortgage, while a higher rate means that – you guessed it – you’ll be paying more in interest. Though this may make it seem as though lower rates are always better, there can often be a catch to a very low rate, so read the fine print. Lenders with the lowest rates sometimes charge the highest penalties should you need to break your mortgage, and they can lack the ability to make extra payments. Read more on interest rates and mortgage options to really understand what you’re getting into before you choose a mortgage.

4. The neighbourhood isn’t always the same on paper as it is in person

The area your home is located in is going to matter to you more than you initially think, so don’t just make a purchase based on the home itself.  You should be looking for the most affordable house in the best neighbourhood, not the best house in the most affordable neighbourhood. Read that again!

Moving into a nice neighbourhood and doing some renovations is a great way to increase your home’s value. While it’s not for everyone, looking for a home that could use some love in a great neighbourhood is an excellent investment strategy.

We’d also recommend that buyers really get to know the neighbourhood before placing an offer on a property. Drive by at night or on a weekend to hear the noise levels, take a stroll through the community, speak to some of your potential neighbours, and really get a sense of what’s nearby and what is not. You’ll save yourself a lot of headaches if you do a little bit of investigating, not everything can be summed up in a stat sheet.

5. You may qualify for a first time home buyer incentive

The first time home buyer incentinve helps qualifying first time home buyers in Canada with their down payment. By participating in the program, you’re essentially entering into a shared equity mortgage with the government of Canada. When you sell, you’ll have to repay the incentive you received based on your property’s fair market value. The program offers:

-5% or 10% for a first-time buyer’s purchase of a newly constructed home

-5% for a first-time buyer’s purchase of a resale (existing) home

-5% for a first-time buyer’s purchase of a new or resale mobile/manufactured home

Learn more about the incentive on the Government of Canada website.

6. Utilities and insurance expenses can add up

Make sure you write down a rough estimate for your utilities and insurance bills so you can budget properly. There’s nothing worse than realizing you’re hundreds of dollars over what you estimated your monthly expenses would be. Don’t forget to factor in the following:

Water, sewage, heat, electricity, internet, condo fees, and insurance. Fire, property, and contents insurance all add up as well.

7. Calculate and consider any home improvement or maintenance costs

Some of these will be one off costs, while others are ongoing. Check to see whether big ticket items like your furnace or your roof will need to be replaced soon, consider energy efficiency upgrades that can lower your monthly energy costs, and calculate the day to day landscaping or general repairs that you may need to make going forward. We’d highly recommend setting up a contingency fund for the unexpected maintenance that comes with owning a home. It’s a good idea to expect and prepare for the unexpected.

8. A good real estate agent is extremely valuable

Many first time buyers make the mistake of not evaluating their real estate agents enough. Take the time to speak with multiple agents and get a feel for who will best represent your needs. When it comes time to negotiate, you’ll want to have an agent who can go to bat for you and put your interests first. Sometimes, the right agent isn’t always the one closest related to you. We’d recommend evaluating agents by reading their reviews and setting up a time to talk. There’s no reason not to speak to a few people, considering you’re likely making the largest purchase of your life to date.

Consider each of these points carefully before you purchase your first property. If you do, you will be prepared for the costs, giving you confidence in your home purchase for years to come.

High demand, higher prices for 2021

General Robyn McLean 12 Jan

The forecast for housing in 2021 from our friends at First National. 

Jan 11, 2021
First National Financial LP

The effects of the coronavirus pandemic have made it more difficult to forecast what is likely to come in the residential real estate market.

But two of the country’s big realtors are looking ahead to ongoing increases in demand and ongoing upward price pressure.

Both Re/Max and Royal LePage see the demand for larger, single, detached homes on larger lots as key driver of the market.

“There was a clear shift towards larger properties and single-family dwellings in 2020, as families repurposed their homes to become office, school classroom, gymnasium and restaurant during the pandemic,” says Royal LePage president Phil Soper.

“We’ve seen a lot of anecdotal evidence since the summer that households are considering significant lifestyle changes by relocating to less-dense cities and neighbourhoods,” says Re/Max Executive Vice President Christopher Alexander.

December’s employment numbers from Statistics Canada show 200,000 more Canadians working from home, for a total of 4.8 million.  Well over half of those people, 2.8-million, do not normally work from home.

Royal LePage sees the shift as part of a larger, demographic change that is merely being hastened by the pandemic.

“Corporate Canada’s pandemic-driven move to work from home operations has simply accelerated relocation patterns already underway,” says Soper.

“The huge baby-boomer demographic began post-children migration to suburban and recreational-style communities in the middle of the last decade, and material numbers of the equally populous millennial generation have been exiting city centre condos in search of space as they began families,” he adds.

Soper also says that the trend of high demand outside of urban centres will slowly ease as listings in city centres become more competitive against growing prices in suburban and exurban markets.

The Re/Max forecast suggests Canadians are, generally, evenly split on where they prefer to live.  Roughly 3-in-10 expressing a preference for each of urban, suburban or rural.

Canadian Jobs Market Tanked in December

General Robyn McLean 8 Jan

What you should know. Chief Economist at Dominion Lending, Dr. Sherry Cooper shares her insight on the markets and what to expect.

Canadian employment fell 62,600 last month, a bit weaker than expected, following seven months of recovery (see chart below). The rapid rise in COVID cases and the ensuing lockdown measures in many key regions caused the net loss in jobs in the mid-December survey.  Especially hard hit were workers at restaurants and hotels who suffered a hefty 56,700 employment loss.

The jobless rate rose a tick to 8.6%–well below the peak of 13.7% in April–but still three percentage points above its pre-pandemic level.

However, there were some bright spots as several sectors churned out small gains (see second chart below).  Among them were finance, insurance and real estate, as well as scientific and tech services. Manufacturing rose 15,400, and public administration reported solid gains.

On a positive note, full-time jobs actually rose 36,500, and average wages pushed back up and are now 5.6% higher than one year ago. This outsized gain, in part, reflects the loss in so many low-wage jobs.

Part-time jobs were down sharply in December, led by losses among workers aged 24 and under and those aged 55 and older. Also, the number of self-employed workers fell by 62,000, its lowest point since the pandemic began.

The December loss of jobs left employment down 571,600 (or -3.0%) from year-ago levels, the deepest annual decline since 1982–but far better than the April reading of -15% y/y. The 2020 job loss in Canada of -3.0% is also a relatively mild downturn compared to today’s US job market release for December, which reported a -6.2% y/y drop in employment. In Canada, the 332,300 y/y loss in accommodation and food services employment alone accounted for 58% of our annual job loss.

Employment was down in nine out of ten provinces last month. The lucky exception was British Columbia. None of the provinces stood out on the low side. The table below shows the unemployment rate by province. Jobless rates rise and fall with labour force participation rates. You are not considered unemployed if you are not seeking work. The number of people counted as either employed or unemployed dropped by 42,000 (-0.2%) in December, the first significant decline since April. Core-aged women and young males were largely responsible for the fall.
Bottom Line 

It certainly doesn’t appear that the lockdowns will be lifted anytime soon. We keep hitting new records in the number of Covid cases, and the more contagious Covid variant is upon us. What’s more, the rollout of the vaccine has been disturbingly slow. So until winter is behind us, there is unlikely to be a meaningful opening of the economy. All things considered, Canada’s economy has been relatively resilient. That’s not surprising given the government income support–the most generous in the G7 countries. Moreover, financial conditions are extremely accommodative.

Although no one is coming through the pandemic unscathed, most of the employment losses have been lower-paying jobs. Many higher-income earners continue to work from home. And even though the pandemic is worsening, many of Canada’s housing markets recorded their strongest December ever. Rock-bottom interest rates, high household savings and changing housing needs turned 2020 into a spectacular year for housing activity.

According to local real estate boards, December resales were surprisingly strong for what is typically a quiet month. Existing home sales surged between 32% y/y in Montreal, Ottawa and Edmonton and 65% y/y in Toronto based on early results. More distant suburbs attracted many families looking for more space with less concern about long commutes when jobs can be conducted at home. Property values continued to appreciate at accelerating rates in most markets. Downtown condo prices still bucked the trend due to ample inventories in Canada’s largest cities—the downturn in the rental market has prompted many condo investors to sell. That said, softer condo prices are now drawing more buyers in. Existing condo sales soared virtually everywhere in December.

Housing is likely to continue to cushion the blow of the pandemic on the overall economy. And while not everyone is sharing in this windfall, it will ultimately help pave the way to better employment gains in the spring.

However, no question that the bright light at the end of the very dark pandemic tunnel is a widely dispersed vaccine. PM Trudeau reasserted this week that the vaccine will be available to all who want it by September 2021. At the pace, it is now getting into people’s arms, that will not happen. Just over 0.6% of Canada’s population was vaccinated as of Thursday, January 7. By comparison, the US had vaccinated 1.8% of its population by that date, and Israel had inoculated nearly 20%, according to Our World in Data, a nonprofit research project at the University of Oxford. The U.K. had vaccinated about 1.9% of its population by Jan. 3, the latest date for which vaccination numbers were available (see the chart below).