Bank of Canada Holds Rates at Effective Lower Bound

General Robyn McLean 9 Dec

Bank of Canada last rate annoucement of 2020…what it means to Canadians from Dr. Sherry Cooper, Chief Economist at Dominion Lending.

Bank of Canada Confirms Commitment To Low Interest Rates

Despite the good news on the vaccine front since the Governing Council’s last meeting in late October, the Bank of Canada reasserted its commitment to provide extraordinary monetary policy support for many months to come. The statement released today reiterated that the Bank will hold the policy interest rate at its effective lower bound of 0.25% “until economic slack is absorbed so that the 2% inflation target is sustainably achieved.”  Although inflation in October picked up, it was mainly because of higher prices for fresh fruits and vegetables. The Bank’s policy statement said that measures of core inflation are all below 2%, and “considerable economic slack is expected to continue to weigh on inflation for some time.”  The economy will continue to require this stimulus until 2023–as stated in the most recent (October) Monetary Policy Report (MPR).

The central bank will reassess the outlook when it meets again on January 20 when it releases the next full update of its outlook for the economy and inflation, including risks to the projection, in the January MPR.

Despite the good news regarding the vaccine, other recent developments weigh heavily on the economy. Canada has been hard hit by the second wave in Covid cases (see chart below). The daily number of cases have averaged just over 6,000 in the past week. According to the Public Health Agency of Canada, Covid-19 cases are on pace to exceed 20,000 a day at the current rate of spread. Provinces all over the country have imposed aggressive new restrictions to slow the spread of the virus.

New lockdown measures are having a crippling effect on non-essential retailers and restaurants during the all-important holiday season. The government announced aggressive fiscal policy measures last week to cushion the blow on businesses and households. Indeed, among all the G7 countries, Canada’s fiscal response has been the most aggressive.

As well, according to Bloomberg News, Canada has reserved more vaccine doses per person than anywhere, as PM Trudeau has accelerated plans to start giving shots.  “The first Canadians will be vaccinated next week if we have approval from Health Canada this week,” Trudeau told reporters in Ottawa. “This will move us forward on our whole timeline of vaccine roll out and is a positive development in getting Canadians protected as soon as possible.”

The Canadian dollar has also risen to a two-year high of over 78 cents US, which the Bank says is in large measure a reflection of broadly based US dollar weakness.

Quantitative Easing Continues

Another potential drag on the Canadian economy is the rise in market rates of interest triggered by the welcome news of a successful vaccine. The Bank of Canada is responding by purchasing at least $4 billion a week in longer-term Government of Canada bonds. For example, the GoC 5-year yield has risen from a low of 31 basis points in the past six months to a current level of just under 50 basis points. No doubt, quantitative easing has dampened the upward trend and will continue to do so.

If the Bank decides that additional monetary support is needed in January, it is more likely to come via a boost to GoC bond purchases than an adjustment in the overnight rate.

In his testimony before the House of Commons finance committee on Nov. 26, Governor Tiff Macklem acknowledged market distortions could occur once the bank’s share of government bond holdings grows beyond 50%. As shown in the chart below, the Bank currently holds about 34% of the market, and if buying continues apace,  CIBC economists estimate the Bank would own 48% by the end of 2021.

Bottom Line: Interest rates will remain low for the foreseeable future. The pandemic will largely determine the growth of the economy and the government’s response. Experts suggest that the second wave will last through the winter and that a widely dispersed vaccine will not be available until the second half of 2021.

Signs of a strong market amid economic confusion

General Robyn McLean 7 Dec

Where are we headed? Some interesting insight from our friends at First National.

Dec 7, 2020
First National Financial LP

Fast moving, ever changing and, often, contradictory information is making it hard to predict what’s coming for the economy.  But, a couple of recent reports may be offering some hints about where residential real estate and mortgages are heading.

A recent survey by the brokerage Properly seems to reinforce current notions that people – particularly millennials – are looking for more space both inside and outside their homes, as a result of being cooped-up by the COVID-19 pandemic and the desire to maintain the option to work from home.

According to the Properly survey more than half of millennials are unhappy with their current homes.  Their preferences have shifted towards:

– detached housing, 45%             – ample square footage, 44%

– better home offices, 28%           – backyard space, 57%

– proximity to green space, 34%

Of the millennials who expressed a desire for a new residence, about 8% said that they have firm plans to buy next year.  That is double the 4% indicated by the rest of the population in the survey.

This report dovetails with a recent survey of real estate brokers by Re/Max.  It suggests move-up and move-over buyers are seen as the big sales drivers over the next year.  Forty-five percent of brokers expect buyers “moving up” to bigger homes and properties will be a key market force.  Thirty-five believe buyers “moving over” from other cities will drive the market.

Both reports suggest that price pressure, resulting from low inventories,  will continue to be the biggest consideration in buying or moving (over or up).  But ongoing low interest rates will continue to be a mitigating factor.

Canada’s Fiscal Response To COVID is the Largest in the Industrialized World

General Robyn McLean 1 Dec

The latest from Dr. Sherry Cooper, Chief Economist at Dominion Lending.

Federal Fiscal Update–Finance Minister Freeland’s Debut

Justin Trudeau’s government, which has delivered the biggest COVID-19 fiscal response in the industrialized world, announced plans for another dose of stimulus and vowed to continue priming the pump as long as needed.

Finance Minister Chrystia Freeland unveiled $51.7 billion of new spending over two years in a mini-budget Monday, led by an enhanced wages subsidy for business. Freeland also pledged, without detailing, another $70 billion to $100 billion of additional stimulus over three years to spur the recovery.

But the finance minister clearly heeded calls for fiscal prudence. She put off any major structural spending announcements, promised any additional stimulus will be temporary and introduced new taxes on digital giants including Netflix, Amazon, and Airbnb, to help pay for it all.

“Our government will make carefully judged, targeted and meaningful investments to create jobs and boost growth,” Freeland said. It will provide “the fiscal support the Canadian economy needs to operate at its full capacity and to stop COVID-19 from doing long-term damage to our economic potential.”

Freeland revised higher the nation’s projected deficit this year to $381.6 billion, or 17.5% of GDP. That’s up from a deficit of 1.7% of GDP last year. According to estimates from the International Monetary Fund, no major economy will show a bigger fiscal swing in 2020.

The budgetary red ink is projected at $121 billion next year, before any additional stimulus. In total, spending linked to the government’s COVID response accounted for C$75 billion of this year’s deficit, and C$51 billion next year.Based on Monday’s projections, the deficit is seen gradually narrowing to about $51 billion in two years and $25 billion by 2025.

The planned stimulus over the next three years will total no more than 4% of GDP, which the document said is in line with the Bank of Canada’s estimate of the level of slack in the economy. Freeland said, “fiscal guardrails” tied to the labour market would help determine the extent of the additional stimulus.

Among the measures announced today, Freeland boosted the government’s wage subsidy program (Canada Emergency Wage Subsidy, CEWS) to cover as much as 75% of payroll costs for businesses and extended its commercial rent subsidy and lockdown support top-ups until March. Both were slated to run out on December 20. The current cap on CEWS was 65%.

The federal government plans to create a new funding program to help restaurants, tourism companies and other businesses in industries hardest hit by COVID-19.

The Highly Affected Sectors Credit Availability Program (HASCAP), which was announced in the government’s fiscal update Monday, will offer eligible businesses loans of up to $1 million, with a 10-year term.

The money will be lent by banks or other financial institutions, but guaranteed by the federal government.

“We know that businesses in tourism, hospitality, travel, arts and culture have been particularly hard-hit. So we’re creating a new stream of support for those businesses that need it most — a credit availability program with 100-per-cent government-backed loan support and favourable terms for businesses that have lost revenue as people stay home to fight the spread of the virus,” Finance Minister Chrystia Freeland said in her prepared speech to the House of Commons.

Establishing a national childcare plan is a key long-term goal, with Freeland vowing a detailed plan in next year’s budget. In her forward to the fiscal update, she described the daycare strategy as “a feminist plan” that also “makes sound business sense.”As a start, the Liberals are proposing in their fiscal update to spend $420 million in grants and bursaries to help provinces and territories train and retain qualified early childhood educators.

The Liberals are also proposing to spend $20 million over five years to build a child-care secretariat to guide federal policy work, plus $15 million in ongoing spending for a similar Indigenous-focused body.

The money is designed to lay the foundation for what will likely be a big-money promise in the coming budget.

Current federal spending on child care expires near the end of the decade, but the Liberals are proposing now to keep the money flowing, starting with $870 million a year in 2028.

There is also money for action on climate change. The government allocated C$2.6 billion in grants for homeowners to improve efficiency and $150 million over three years for electric vehicle charging stations.

The government also detailed some help for the hard-hit tourism sector, including funding for airports. But with Transport Minister Marc Garneau’s negotiations with airlines underway, there is no specific money for carriers including Air Canada and WestJet Airlines Ltd.

Bottom Line

There will continue to be great concern about the largest budget deficits since World War II. Does Canada really need the proportionately largest COVID fiscal response in the industrialized world?  The outlook is somewhat less dire than when the government released a fiscal snapshot in July. The unemployment rate at 8.9% is down materially from May’s 13.7% high but well above February’s 5.6%. The economy recovered ground through the third quarter, although the second wave of pandemic and ensuing restrictions undoubtedly will topple economic activity this quarter.

There is little worry that the government can sustain a massive deficit this year. It can, given low debt levels entering the crisis and historically low interest rates. But now that it has no fiscal guardrails, there’s a risk debt-to-GDP will continue to rise in the medium term if it continues to spend ambitiously.

The government is adding a new revenue source by taxing large digital companies. Still, in time, with this level of spending, they will be tempted to raise taxes on domestic sources, for example, hikes in the GST and higher capital gains taxes. This would be misguided, given the fragility of the recovery.

There is a greater risk that the government is overdoing the stimulus with vaccines on the horizon than undergoing it. Canada’s programs have been generous and household-focused compared to our G7 peers. The government must be strategic in assuring that new program spending is focused on future growth, beyond the pandemic, so that our debt-to-GDP will resume its downward trend. The risk is that once created; it is difficult to rein in spending.

Strong market despite consumer concerns

General Robyn McLean 30 Nov

Insight on current market conditions from our friends at First National.

Nov 30, 2020
First National Financial LP

The reports and realities continue to appear at odds.  Home sales and prices remain strong, while surveys suggest debt and other money worries remain top of mind for many Canadians.

October saw a resurgence of COVID-19 cases across the country and a corresponding return to tighter health-related restrictions and closures.  Still, home resales jumped to another record-setting, monthly high with a nearly one-third increase (32.1%) over a year ago.  Although there was a slight (-0.7%) slip from September.

The national average price for a home topped $607,000, up 15.2% over last October.  With Toronto and Vancouver calculated out, the national average price rose to $480,000, a 19.5% increase year over year.

At the same time, the annual Debt Survey by one of Canada’s big insurance companies / banks suggests one-third of Canadians (35%) were financially unprepared for the pandemic.  That appears to have led to a substantial amount of anxiety about homeownership.

The survey indicates more than a third of respondents (36%) have “significant” worries about saving for a home.  It suggests many feel they have been – or are about to be – priced out of the market.  It says, on average, Canadians have been allocating nearly half of their income to essentials like food and housing since the pandemic started.  Fifty-eight percent of homeowners and 54% of renters worry about making their payments.

There is a sharp disparity that shows up in the survey as well.  More Canadians report being debt free – 27% compared to 21% last fall.  Over the same period, the average savings rate has climbed to 16% of after tax income, up from 14%.  But nearly a quarter of respondents report saving zero after tax income since the pandemic started.  And, those who are in debt appear to be having a harder time.  Nearly a quarter say everyday living has caused their debt.

According to the survey nearly half of indebted Canadians say their debt is having a negative effect on their mental health.  More than a third say their debt keeps them awake at night.

Canadians hoarding cash

General Robyn McLean 24 Nov

Interesting insight from our friends at First National.

Nov 23, 2020
First National Financial LP

When the COVID-19 pandemic was first declared and the shutdowns were first implemented back in the spring Canadians started stockpiling.  They cleared store shelves of everything from canned foods to cleaning products to, famously, toilet paper.

Turns out they have also been hoarding cash.

A new report by prominent economists Katherine Judge and Benjamin Tal estimates Canadian households have amassed a collective $90 billion in savings, above and beyond what they would have banked without the influence of the pandemic.  It is the largest accumulation of cash ever recorded.  The savings rate in Canada shot up to 28.2% in the second quarter of this year, compared to just 3.6% in Q1.  Using U.S. figures as a guide the economists estimate the rate currently stands at 13%.

Unfortunately, COVID has not led to universally healthier Canadian bank accounts.  While government aid programs supported incomes for millions of Canadians, Tal and Judge believe most of the money that has ended up in chequing and saving accounts has come from reduced spending.  Based on the U.S. statistics used by the economists, spending less is an option that favours mid to high income households.  Low income households, that have been hit hardest by pandemic restrictions and lockdowns, still have to spend a larger proportion of their income on necessities.

Judge and Tal do not foresee these savings pouring back into the economy anytime soon.  They expect the second wave of the pandemic and the imminent flu season will keep spending in check well into the first quarter of next year.

7 Tips For Holiday & Winter Fire Safety

General Robyn McLean 24 Nov

Some great tips on home safety for the holidays from our friends at Pillar & Post Home Inspection.

Canadian October Home Sales Slipped for the First Time Since April

General Robyn McLean 16 Nov

Important market updates from Dr. Sherry Cooper, Chief Economist at Dominion Lending. 

Today’s release of October housing data by the Canadian Real Estate Association (CREA) shows national home sales fell 0.7% month-over-month (m-o-m) from September’s record high (see chart below). This is the first decline in five months, as market conditions remained tight and prices continued to rise. Competition remains intense in the detached-home market and townhouses, but condo apartment sales have slowed as new listings surge, especially in the Greater Toronto Area (GTA). 

The small change from September to October reflected gains in about half of all local markets offset by declines in the other half. Among the larger markets, activity was up in Montreal, the Fraser Valley, Calgary and Edmonton. By contrast, sales fell back in the GTA, Hamilton-Burlington, Ottawa and Greater Vancouver.

Actual (not seasonally adjusted) sales activity posted a 32.1% y-o-y gain in October. It was a new record for that month by a margin of more than 14,000 transactions. For the fourth straight month, sales activity was up in almost all Canadian housing markets compared to the same month in 2019. Among the few markets that were down on a year-over-year basis, it is possible for the handful that is in Ontario simply do not have the supply at the moment.

This year, some 461,818 homes have traded hands over Canadian MLS® Systems, up 8.6% from the first 10 months of 2019. In fact, it was the second-highest January-October sales figure on record, trailing only 2016. It is possible that 2020 could prove itself to be a record year for housing activity–certainly in opposition to what many thought when the pandemic hit in March. There is no doubt that COVID-19 has caused many households to uproot and change homes based on their altered lifestyle and working situation. Much of this activity would not have happened had the pandemic not struck.

New ListingsThe number of newly listed homes climbed 2.9% in October. The overall gain in new supply in October was driven by more new listings in the GTA, B.C.’s Lower Mainland and Ottawa. As with sales activity, actual (not seasonally adjusted), new listings set a new record for October; however, it was by far less of a margin than sales. Meaning market conditions are still very tight in many parts of the country.

The Toronto Real Estate Board reported that the pace of annual sales growth far outstripped growth in new listings in the detached market segment. Conversely, the condominium apartment market segment experienced more than double the new listings than in October 2019, whereas sales were only up by 2.2% over the same period (see chart below).

“Competition between buyers of single-family homes, and particularly detached houses, remained strong last month and continued to support double-digit annual rates of price growth in many GTA neighbourhoods. In contrast, condo buyers have benefitted from much more choice compared to last year. Pre-COVID polling had already pointed to an increase in investor selling in 2020. The pandemic only added to this trend with a stall in economic growth and a halt to tourism impacting cashflows for many investors,” said Lisa Patel, TRREB’s President.

The dearth of tourists has devastated the short-term rental condo market, many of which are listed on Airbnb. And a dramatic decline in immigration hurt the long-term condo rental space. Rents overall have fallen in the GTA, and many investors are trying to sell. As well, many buyers of yet-to-be-delivered new condos are trying to flip their contracts. The federal government initiatives to increase immigration in 2021, if successful, will help remediate this situation. Still, tourism will not open back up until a vaccine is widely distributed around the world. There has been some good news on that front.

With new supply up in October and sales relatively little changed, the national sales-to-new listings ratio eased to 74.3% – still among the highest levels on record for the measure. The long-term average for the national sales-to-new listings ratio is 54.1%.

Based on a comparison of sales-to-new listings ratio with long-term averages, about a third of all local markets were in balanced market territory in October, measured as being within one standard deviation of their long-term average. The other two-thirds of markets were above long-term norms, in many cases well above.

There were just 2.5 months of inventory on a national basis at the end of October 2020 – the lowest reading on record for this measure. At the local market level, some 18 Ontario markets were under one month of inventory at the end of October.

Home PricesThe Aggregate Composite MLS® Home Price Index (MLS® HPI) rose by 1% m-o-m in October 2020. Of the 39 markets now tracked by the index, all but one were up between September and October (see table 1 below).

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 10.9% on a y-o-y basis in October – the biggest gain since July 2017.

The largest y-o-y gains – more than 25% – were recorded in Ontario’s Quinte & District and Woodstock-Ingersoll.

Y-o-y price increases in the 20-25% range were seen in Ottawa, London & St. Thomas, Tillsonburg District and some Ontario cottage country areas.

Y-o-y price gains followed this in the range of 15-20% in Barrie, Hamilton, Niagara, Guelph, Bancroft and Area, Brantford, Cambridge, Huron Perth, Kitchener-Waterloo, North Bay, Peterborough and the Kawarthas, Simcoe & District, Montreal and Greater Moncton.

Prices were up in the 10-15% range compared to last October in the GTA, Oakville-Milton, Mississauga and Northumberland Hills.

Meanwhile, y-o-y price gains were in the 5-10% range in Greater Vancouver, the Fraser Valley, the Okanagan Valley, Regina, Saskatoon, Winnipeg and Quebec City. Gains were less than 4% in Victoria and elsewhere on Vancouver Island, as well as in St. John’s, and prices were just inside positive territory y-o-y in Calgary and Edmonton.

The actual (not seasonally adjusted) national average home price set another record in October 2020, coming in at $607,250. This was up 15.2% from the same month last year.

Bottom Line

Housing strength is largely attributable to record-low mortgage rates and pent-up demand by households that have maintained their income level during the pandemic. The hardest-hit households are low-wage earners in the accommodation, food services, and travel sectors. These are the folks that can least afford it and typically are not homeowners. The good news is that the housing market is contributing to the recovery in economic activity.  

Since Pfizer’s announcement that they have a highly effective vaccine in the works, interest rates in the US have edged upward. This has been mitigated in part by the dramatic surge in COVID cases worldwide and tighter restrictions on activity. This morning, Modernal Inc. said its COVID-19 vaccine was 94.5% effective in preliminary analysis of a large late-stage clinical trial, another sign that a fast-paced hunt by scientists and pharmaceutical companies is paying off with potent new tools that could help control a worsening pandemic. This great news has pushed up the US and Canadian bond yields, leading many to suggest that a rise in mortgage rates can’t be far behind. Stock markets are rising sharply, especially in the US, where they are hitting new record highs.

The 5-year Government of Canada bond yield is currently at .45%. It had been as low as .39% recently and .28% over the past year. The good news on the vaccine front may well be overblown given that expanded pandemic restrictions and record cases will dampen economic activity well through the winter months, mitigating the upward pressure on rates. Any mortgage rate increases will be 10 basis points or less, although discounts might start to disappear.

Optimism: point, counterpoint

General Robyn McLean 10 Nov

Some insight on today’s market conditions from our friends at First National.

Nov 9, 2020
First National Financial LP

Current optimism about Canada’s housing market appears to be at odds with two recent surveys that check Canadians’ attitudes toward their financial situations.

The October market is shaping up to be a “carbon copy” of September according to well known economist Robert Hogue.  Early numbers from across the country indicate little cooling, with sales running 23% to 37% higher than a year ago.  Detached, single family homes remain the hottest commodity.

However, the latest quarterly survey by insolvency consultants MNP suggests those buyers may be coming from a shrinking pool.  Broadly speaking, the firm’s latest Consumer Debt Index indicates nearly half of Canadians (47%) say they are $200 or less away from insolvency.  That number includes 26% who are already insolvent.  Key groups such as renters, women and millennials are most likely to say that their debt situation has gotten worse.

Employment is a major concern.  Younger people and low income earners have been hardest hit by job losses triggered by COVID-19 restrictions.  More than 40% of the women surveyed fear that they, or someone in their household, could lose their job because of the pandemic.

The survey also suggests nearly a quarter of households earning more than $100,000 a year say they can’t meet their debt obligations. Fifteen percent of these households say they are already insolvent.

The latest Financial Hardship Report from credit tracker TransUnion suggests 48% of Canadians have seen their finances hurt by the pandemic and 63% are concerned about their ability to pay current bills and loans.

Mortgages: The Interest Rate Debate

General Robyn McLean 5 Nov

Some valuable information about what to look for in a mortgage from our friends at Dominion Lending. 

Learn about variable rates vs fixed rates and more
By Dominion Lending Centres Oct 30, 2020

When it comes to getting a mortgage, there are a lot of common questions that potential mortgage holders have such as “what is your interest rate?” and “what is the monthly payment?”. While it can be easy to think that these are the only two questions that matter, there is actually a lot more to your mortgage contract than just the rate and monthly fees.

The Rate Debate

The rate debate is a hot topic in the mortgage world. Not just the rates itself, but the importance of the rate versus other factors in the mortgage – such as terms and penalties. As a borrower, it can be easy to get caught up in one thing but, if you’re not paying close attention, ignoring other factors could cost you in the long run. Let’s talk about the rate.

While not the only factor, the rate remains a vital component of any mortgage product. The interest rate is the percentage of interest you are paying on the principal loan; lower interest rates mean more money to the principle mortgage and less paid on interest. Who doesn’t want that?

Variable Vs. Fixed

There are two types of mortgage rates: variable/adjustable rate and fixed rate. A fixed-rate is just that – a fixed amount of interest that you would pay for the term of the mortgage. A variable-rate, on the other hand, is based on the current Prime Rate and can fluctuate depending on the markets. Fixed rates are typically tied to the world economy where the variable rate is linked to the Canadian economy.

Fixed-Rate Mortgage: First-time homebuyers typically love the stability of a fixed rate when just entering the mortgage space. The benefit of this type of mortgage rate is that your payments don’t change throughout the life of the term. However, should the Prime Rate drop, you won’t be able to take advantage of potential interest savings. Adversely if prime increases your fixed rate and payment are protected against the hike.

Variable-Rate Mortgage: As variable-rate mortgages are based on the Prime Rate in Canada; it means that the amount of interest you pay on your mortgage could go up or down as the economy fluctuates. When considering a variable-rate mortgage, some individuals will set standard payments (based on the same mortgage at a fixed-rate), this means that should Prime drop and interest rates lower, they are paying more to the principal as opposed to paying interest. If the rates go up, they simply pay more interest instead of direct to the principal loan. Other variable-rate mortgage holders will simply allow their payments to drop with Prime Rate decreases, or increase should the rate go up.

Beyond Rates

When considering your mortgage, other conditions such as penalties can be important factors for deciding which is the best product for you. For instance, if you have two competing products, say 1.95% interest fixed-rate and a 2.05% interest variable-rate, it seems as though it is a pretty easy decision. However, what about the ability to make extra payments? And what are the penalties?

It is easy to think that nothing will change throughout your 5-year mortgage term, so you probably haven’t even considered the penalties. However, when looking at the fixed versus variable rate mortgage, penalties can be quite different. Where variable rates typically charge three-year interest, a fixed-rate mortgage uses an Interest Rate Differential (IRD) calculation.

Given that nearly 70% of fixed mortgages are broken before the term ends, this is an important variable. Fixed-rate mortgages are typically okay when the penalty is your contract rate versus the Benchmark rate. However, when penalties are based on the Benchmark rate (sometimes called the Bank of Canada rate), it is typically much higher than your contract rate, resulting in greater penalties.

In some cases, penalties for breaking a fixed mortgage can sometimes be two or three times higher than that of a variable-rate. While the interest rate is lower, lower penalties are sometimes best should anything happen down the line.

Another key point to consider is whether or not your mortgage is portable, meaning it can be moved to a different property. This means that you can take your existing mortgage – along with its current rate and terms – from one property and move it to another. This can only be done if you’re purchasing a new property at the same time as you are selling the old one.

 

Conventional vs. High-Ratio Mortgage

Another consideration beyond just the interest rate, is whether or not you will be obtaining a conventional or a high-ratio mortgage. Whenever possible, it is recommended to put 20 percent down payment on a new home. This results in a conventional mortgage. However, as not everyone is able to do this, many buyers will end up with a high-ratio mortgage product.

So, what does this mean?

High-ratio mortgages need to be insured by either Genworth Financial, the Canada Mortgage and Housing Corporation (CMHC), or Canada Guaranty. This is due to the Bank Act, which will only allow financial institutions to lend up to 80 percent of the homes purchase price WITHOUT mortgage default insurance. Insurance on the mortgage is important to protect the lender should you default on your payments, leaving the insurer to deal with the borrower.

The difference between conventional and high-ratio mortgages is that high-ratio mortgages (or any mortgage with less than 20% down) require default insurance, which results in an insurance premium. This is added to and paid along with the mortgage, but is an important factor when considering your monthly payments. These premiums are based on the loan to value (LTV), which is the amount of the loan versus the value of your home. It is important to note that these premiums are added to your mortgage principal, which is an extra cost to you. Additionally, since the premiums are part of the balance these premiums also have the interest charged to it.

All high-ratio mortgages are regulated to have mortgage insurance. In having mortgage default insurance as a requirement, the lender’s risk is far less hence high ratio mortgages generally yield lower interest rates.

 

Smart Questions to Ask

To ensure you understand your mortgage contract and how it could affect you now and, in the future, we have compiled a few smart questions to ask before you sign.

  1. What is my interest rate? Can I qualify for a better one?
  2. Do you recommend a fixed or variable-rate?
  3. What are the penalties for breaking my mortgage?
  4. Are there any prepayment privileges?
  5. Will I require default insurance? If so, what are the premiums?
  6. What will my monthly payment be?
  7. Is my mortgage portable/assumable?

These are just a few examples of good questions to ask. It is important to do your own research and be diligent with any contract you are signing. Contacting a Dominion Lending Centres mortgage professional can help ensure you understand what you are agreeing to, and that you are getting the best mortgage product for you.

“ It’s not the load that breaks you down, it’s the way you carry it.”

General Robyn McLean 4 Nov

The state of the market from my friend Kevin Skipworth at Dexter Realty. 

“ It’s not the load that breaks you down, it’s the way you carry it.”Lou Holtz

We made it through Halloween in the year 2020 – with a full moon, endless fireworks and turning back the clocks and with all that it was the real estate market that was the least scary in all this. In fact, the market continued to shake off the effects of the pandemic in October and went out dressed as a bull when so many thought it would be the bear. Throw in a provincial election and the United States Presidential Election as a potential distraction to home buyers and sellers – but they weren’t having any of it. The beat just carried on.

There were 3,787 properties sold of all types in Greater Vancouver in October this year compared with 3,741 sold last month, 2,892 sales in October last year and 1,995 sold in October 2018. It was the second highest amount of sales for the month of October on record in Greater Vancouver, second to 3,942 in 2003. Each month it seems that the end of this run gets forecasted but we’ve yet to see that happen. Of course, as we go through a typical year of market cycles, November, December and January see activity slow down.

While this hasn’t been a typical year, it is safe to assume we’ll see this trend playout for the next 3 months as we come off the highs we’ve experienced. This shouldn’t be surprising nor indicative of anything more. This extremely local and well-founded market has the strength of significant demand behind it. But the current pandemic conditions and economic weight from the pandemic may play into market activity, but as we’ve seen it can both pull and push the market. And it is interesting to note that total sales in Greater Vancouver so far in 2020 are just shy of the total sales in 2019 and have already surpassed total sales in 2018. This is much more than pent up demand from a Covid-19 shutdown in the spring.

Total sales in October were 36 per cent above the ten-year average for the month. Looking at the different types of properties, detached home sales were up 43 per cent year over year (77 per cent in September), townhouses up 45 per cent year over year (72 per cent in September), apartments up 13 per cent year over year (36 per cent in September). The number of sales in October last year was the highest by month for 2019 so not surprising to see the year over year increases less this October. Detached homes made up 35 per cent of all sales, while townhomes made up 21 per cent and apartments 41 (down from 44) per cent. Total active listings for apartments are up 31 per cent year over year (compared to 20 per cent at the end of September), and active listings for townhouse and detached homes are down 12 per cent and 20 per cent respectively year over year (compared to 9 and 21 per cent).

2020 Average Daily Listings and Sales in Greater Vancouver by Week:

First two weeks of March – 253 new listings, 138 sales
Last two weeks of March – 167 New Listings, 98 Sales
April – 120 new listings, 56 sales
May – 189 new listings, 75 sales
June – 274 new listings, 115 sales
July – 274 new listings, 147 sales
August – 299 new listings, 157 sales
September – 313 new listings, 176 sales
October 5 to 9 – 300 new listings, 169 sales
October 13 to 16 – 311 new listings, 186 sales
October 19 to 23 – 254 new listings, 206 sales
October 26 to 30 – 222 new listings, 167 sales

In October there was a significant decrease in the number of new listings compared to September. In fact it was the lowest amount by month since May of this year. The number of new listings in October were 24 per cent higher than the ten-year average for this month but with the decrease in new listings and continued demand from buyers, the total number of active listings in Greater Vancouver has dropped down to 12,797 at the start of November. This is compared to the peak this year of 13,790 at the end of September and 12,658 at the beginning of November 2019 in Greater Vancouver.

As we move through the last two months of 2020 – which can’t happen quick enough, the inventory of resale homes will continue to decline and we’ll start 2021 with another market short on supply. The residential market in Greater Vancouver currently has 3 month’s supply of homes for sale – indicative of a seller’s market. We are witnessing extreme seller’s markets in North Vancouver, areas of Burnaby, Coquitlam, Port Coquitlam, Pitt Meadows, Maple Ridge and Ladner that have 2 month’s supply with their being only one month’s supply of townhomes in Port Moody, Port Coquitlam and Coquitlam. The number of active listings for downtown apartments continues to be high although the increase in new listings leveled off in October. There has been an increase in the number of rentals available downtown as well with monthly rents showing a decline.
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“Home has been a focus for residents during the pandemic. With more days and evenings spent at home this year, people are re-thinking their housing situation,” Colette Gerber, REBGV Chair said, “With demand on the rise, homes priced right for today’s market are receiving attention and, at times, garnering multiple offers.”

East of Vancouver, the Fraser Valley Real Estate Board processed 2,370 sales of all property types on its Multiple Listing Service® in October, an increase of 6.2 per cent compared to sales in September and a 48.9 per cent increase compared to October last year. This was the highest sales for the month of October in the Fraser Valley Board, a continued trend from September. There were 3,081 new listings in October, a 12.3 per cent decrease compared to September and a 29.3 per cent increase compared to October of last year. September finished with 6,872 active listings, a decrease of 6.8 per cent compared to September’s inventory and a decrease of 7.1 per cent year-over-year. “The situation is unprecedented. We are in the middle of a pandemic and in many of our communities we are seeing a strong seller’s market for townhomes and single-family homes priced correctly.” Chris Shields, President of the Fraser Valley Real Estate Board said. “For example, in Langley, our current supply of detached homes would sell in 1.4 months if no new listings became available. And for Mission townhomes, we have zero months of inventory.”