All posts for the month March, 2016

About the current idea of requiring banks to share more of the risk associated with home mortgages

Published March 30, 2016 by Real Estate Leads

VANCOUVER – Canada Mortgage & Housing Corporation (CMHC) is currently exploring the future possibility of requiring banks to share more of the risk associated with home mortgages.

During a press conference held in Calgary in March 2016, CMHC said the proposed requirement for lenders to pay the deductible on mortgage insurance claims is heavily being considered.

According to the CHMC website of the federal housing agency, the CMHC is working with Department of Finance along with the Bank of Canada to explore ways of more evenly distributing risk across the financial system.

The idea of is forcing banks pay a deductible on mortgage insurance claimsc was first presented by CMHC to the previous Conservative government. It is not yet clear if the new Liberal government will be interested in pursuing the overall idea, or not.


The Canadian Centre for Policy Alternatives produced the above chart – that makes the case that people in their 20s have the highest debt loads, but people in their 30s and 40s experienced the largest level of increase in debt since 1999.

Those who buy a whole with less than a 20% down-payment are mandated to acquire mortgage default insurance, from either the CMHC – or – one of the private mortgage insurers.

The Canadian Bankers Association (CBA) has warned Harper’s government that shifting more mortgage risk onto the banks would threaten the entire country’s financial stability.

Through an Access to Information request last year. the industry association laid out its position in a letter to CMHC, written in August 2014; and was obtained by The Canadian Press. Subsequently the Department of Finance stated, in November 2015, that it had has performed preliminary research concerning the potential impact of having the banks share mortgage default risk.

In the 2nd week of March 2016, the CMHC defended the organization’s status as a public institution and said that it acted in an important role during the 2008 global financial crisis.

” As a Crown corporation with a public policy mandate, CMHC needs to be present in the market through all economic cycles.”, stated the CHMC. ” This is a fundamental way in which we contribute to Canada’s financial stability. In fact, our role now in Alberta is to support continuous access for Albertans to the housing market, even if private insurers choose to pull back. ”


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“Millennials” and their predicted influence in the real estate market as they start to have children themselves and will need extra space

Published March 22, 2016 by Real Estate Leads

Like their baby boomer parents, today’s millennial generation is about to make their impact on the housing market as they start having children, and their natural need for more space increases.

But how will Canada’s millions of millennials end up in their quest to make a stable living in order to consistently afford their home. Just how they will make and impact on the real estate market has just started to play out.

This first wave of millenials, baby boomers’ children who ages range from 15 to 34 and make up 25% of Canada’s population, are entering their prime home-buying years. Many live in Vancouver & Toronto; where job growth has been increasing.

Among those fortunate or lucky enough to find a decent, dependable full-time non-contract job; have been driving-up competition for single-family homes & condos.

Affordability will play a huge factor in who buys what, but Canada Mortgage & Housing Corporation has surprisingly published little data so far on how much impact millennials have been having so far. Also the Toronto Real Estate Board, which covers the GTA resale market every two weeks, also has published very little if at all on the regarding the influx of millennials into the real estate market.

Despite the little data published so far Millennials have so far a significant influence on the GTA home rentals, because of their eagerness to often pay a higher price; $1700-$1800/month – many wishing to rent cloud-level new glass and granite units, to enable them to have an easy walk to and from work.

This has helped power the recent ongoing downtown condominium boom in Toronto, especially in the downtown core where, despite hundreds of of new units coming into the market per month; the rental vacancy rate remains below 2%.

Toronto condos are now incrementally rising to the half million mark, so condo developers have started to building rental-only units, anticipating a high percentage of millennials will long-term renters.

With about a million and a half millennials in the Tornoto area, they are a key group lto keep pushing upward pressure on the housing market.

Millennials and those before them, the 30-somethings now going on 40-somethings, are a generation of men and women who are spending their early adult lives in centers of large cities. Home is about being part of an integrated community more than it did in previous generations; in contrast to back in the days when having a front yard, a backyard, and a 2-car garage.

However, the average new condo has compressed space in the last decade, from an average 909 to 766sqft. Developers state this is what is needed to keep costs down during this period of escalating land values and ever increasing government taxes & faces.

For the more old-fashioned segment of millenials, a detached house in the city now averages more than $1,000,000 has set the stage for townhouses and semi-detached homes to be the way to go in the Vancouver & Toronto areas for young buyers, especially new parents, wanting to bypass the high-rise condos.

The notion of home ownership seems to be changing, in which young buyers are looking less for quantity and more for quality. They are also looking for “complete communities” – urban villages with parks + social amenities.

Toronto communities like Brooklin, Ajax, Pickering, Oshawa, & Whitby and have become millennials magnets as GO Transit ride frequencies have increased and the eastern extension of Highway 407 is also nearly completed.


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Some say foreign capital should be regulated – results of forum discussion

Published March 14, 2016 by Real Estate Leads

Foreign investment/ownership of Canadian real estate has long been a contentious issue for both industry players and foreigners. The Canada Mortgage and Housing Corporation has come out with statements regarding this over the past couple of months; saying that overseas capital is responsible for the recently observed price spikes in luxury housing.

In Vancouver & Toronto, it is very possible that foreign buyers account for a substantial portion of the demand for pricier, luxury single-family homes, although hard numbers on the phenomenon have yet to come in.

CBC News on Monday March 7th, 2016 asked Canadians during a live forum to discuss the matter. The conference concluded that most Canadian consumers want to see tighter regulations of foreign capital moving its way through Canada’s markets. Forum attendees mentioned increased evidence of vacant-but-owned homes as emblematic of the problem of greater foreign prominence.

The group felt there should be a levy or tax on ‘under-occupied’ residences; this can be verified by collecting data from utilities providers which could strongly indicate whether a property or unit is actually occupied. Had a resident acquired the property as a residence, they would have an income, payroll, and be a sales tax-paying member of the community. Yet as a non-resident, the foreign investor sitting on a vacant property gives nothing back to Canada. Adding a regulation or possible retroactive regulation would greatly help with improving affordability.

There was a general consensus that for housing prices to be corrected, 3 needs would need to happen:

  1. A raise in interest rates
  2. Outlaw shadow flipping and ensure hefty taxesare paid each time there is a change to property ownership
  3. Tax foreign owners at least 50%of the assessed value unless they can prove occupancy at least six months a year.

Others argued that regulation would not be a good move; especially in an economy hurting from the continuing state of low global oil price They say things like, “Why should Canadians deter investment in this country? The housing market employs and creates tens of thousands of jobs in the construction industry.” “We don’t need a political agenda messing up free enterprise based on folklore surrounding foreign ownership.”

Others argued that Chinese investors smuggle out millions in embezzled cash, hot money or perfectly legal funds, bypassing the $50,000/year limit in legal capital outflows. They make “all cash” purchases, usually sight unseen, using third parties intermediaries to preserve their anonymity, or directly in person, in cities like Vancouver, New York, London or San Francisco. The house becomes a new “Swiss bank account”, providing the promise of an anonymous store of value and retaining the cash equivalent value of the original capital outflow.

Some speculate that hundreds, if not thousands, of Vancouver houses, have become a part of the new normal Swiss bank account: “a store of wealth to Chinese investors eager to park “hot money” outside of their native country, and bidding up any Canadian real estate they could get their hands on.”


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As single family home prices keep rising, buyer’s interest into condos has been increasing

Published March 7, 2016 by Real Estate Leads


Affordability in Canada’s most expensive cities has reached crisis levels. An average 1st time buyer in Vancouver now needs more than 10 years to save up for a down payment on a home. This is due to tough new federal mortgage rules.

As buyers in Toronto and Vancouver have struggled to get a foothold into the market for freestanding homes, condos have proved to be an increasingly affordable option for many. A surge of new condo construction has kept resale prices in check in many cities. Coupled with falling interest rates, buyers are now able to spend less of their income to afford a condo than in the past. It has fallen even more dramatically in markets such as Calgary, Edmonton and Montreal.

Spurred by low interest rates, steady income growth, and soaring prices of individual homes in Vancouver & Toronto have created a demand surge in condo construction.
In the Vancouver area, average resale house prices jumped nearly 14% over the past year to more than $950K. It now takes 109% of median pretax income to pay the aggregate the costs of a mortgage, property taxes & utilities on a typical freestanding home, according to a 4Q 2015 analysis by the Royal Bank of Canada.

Surging home prices and more difficult down-payment rules for insured mortgages took effect in the middle of February 2016. This set the stage for the typical 1st-time buyer in Vancouver now needing to save 10% of their pre-tax income for 132 months, or about 11 years, in order to afford the minimum down payment on a typical home; up from 90 months, or about 7 1/2 years, in the 4th quarter 2015.

In Toronto, the average 1st-time buyer would need to save for 77 months – more than 6 years – to afford the down payment on an average home. The cost of having a detached house now exceeds more than 70% of median household income in Toronto.

Owning a home has now become a luxury in Canada’s two hottest housing markets; accessible to independently wealthy buyers. According to recent trends, there little hope left for buyers that such conditions will change any time soon.

The rule changes in particular are pushing many 1st-time buyers into the condo market; which is currently more affordable for such buyers as there is an abundance of supply. Toronto & Hamilton are the only two major cities in which condo ownership has become more expensive over recent years. Surprisingly, even buyers in Vancouver are spending slightly less of their income on mortgage payments for condos than they did in the past. Monthly mortgage payments on a typical condo in the Vancouver area cost 34% of median pre-tax income.

Condo supply in Vancouver supply has been been increased to meet demand; so even in markets like Vancouver, condo prices have remained relatively stable over the past 5 years because of new condo construction.

In Toronto, Montreal, and Vancouver, condo ownership may be more affordable than buying a house; but it still commands a healthy premium to renting.


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