No Comments

B-20 Stress Test Needs Revision to Improve Housing Affordability

BCREA Stress Test

The British Columbia Real Estate Association (BCREA) is calling on the federal government to revisit the B-20 stress test so that more BC families can achieve their dream of homeownership. Mortgage lending rules, known as the B-20 stress test, have eroded housing affordability by reducing the purchasing power of families by as much as 20 per cent. Introduced last year, the stress test forces even the most credit-worthy borrowers with large down payments to qualify at an interest rate that is two percentage points above the rate they negotiate with their bank.

“We would like to see a review and reconsideration of the current mortgage underwriting ‘stress test,’ as well as a return to 30-year amortizations for federally insured mortgages,” says BCREA chief executive officer Darlene Hyde. “These rules must be changed now before BC families are left further behind.”

The stress test has caused a sharp decline in the attainability of homeownership in Canada. Since its implementation, home sales have declined 18 per cent across the country. Canada’s largest urban centres, where lack of affordability was especially acute before the new rules came into effect, have been hardest hit.

Home sales have declined nearly 25 per cent in Toronto and more than 45 per cent in Vancouver over the same period.

Stress Test Home Sales

“The B-20 stress test is also having a negative impact on homeowner equity, family spending and the housing stock itself,” adds Hyde. “There’s a knock-on effect to the overall economy as families who are worried about declining home equity cut back on retail spending, home renovations and other products and services.”

A sharp decline in housing demand also causes home builders to pull back on production, arguably when it’s needed most, leading to slower growth of the housing stock and yet another supply crunch coupled with upward pressure on home prices down the road. Accordingly, the Canadian Home Builders’ Association has expressed similar concerns regarding the B-20 stress test, and the Canadian Real Estate Association and Toronto Real Estate Board have recently made similar appeals.

When families are locked out of the housing market by the strictest of mortgage rules, even the BC government treasury is affected. The sharp decline in home sales caused by the B-20 stress test has cost the government $400 million in lost Property Transfer Tax revenues alone, money that could have been used for health care, education and affordable housing.

BCREA – Vancouver, BC – March 12, 2019.

No Comments

Bank of Canada Interest Rate Announcement

Bank of Canada Interest Rates

The Bank of Canada raised its target for the overnight rate by 25 basis points to 1.75 per cent this morning. In the statement accompanying the decision, the Bank noted that the Canadian economy is expected to average growth of 2 per cent over the second half of 2018 before slowing to 1.9 per cent next year. The renegotiation of NAFTA is expected to lower uncertainty and boost business investment and exports while households spending and the housing market are stabilizing after the implementation of the B20 mortgage stress test. Inflation is expected to remain close to 2 per cent over the Bank’s two year projection horizon.

The resolution of NAFTA negotiations earlier in the fall paved the way for the Bank of Canada to resume its rate tightening this morning. While inflation data came in slightly soft in September, the Canadian economy is still operating above its long-run trend which should keep inflation near the Bank’s 2 per cent target. The Bank will meet one final time in 2018 at its December meeting, at which we expect policymakers will maintain the target rate at is current level before raising the target rate to 2 per cent in January 2019. As the target rate continues on its path higher, Canadian mortgage rates will continue to rise, ultimately resulting in a 6 per cent qualifying rate by the end of 2019.

No Comments

Housing Market Reacts to Mortgage Stress Test

Vancouver Real Estate recats to Mortgage Stress Test BC

BCREA 2018 Third Quarter Housing Forecast Update

The British Columbia Real Estate Association (BCREA) released its 2018 Third Quarter Housing Forecast MLS Residential SalesUpdate today.

Multiple Listing Service® (MLS®) residential sales in the province are forecast to decline 21 per cent to 82,000 units this year, after recording 103,768 residential sales in 2017. MLS® residential sales are forecast to increase 8 per cent to 88,700 units in 2019. The 10-year average for MLS® residential sales in the province is 84,800 units.

“The BC housing market is grappling with a sharp decline in affordability caused by tough B20 stress test rules for conventional mortgages,” said Cameron Muir, BCREA Chief Economist. “While these rules have had a negative effect on housing demand across the country, the impact has been especially severe in BC’s large urban centres because of already strained housing affordability.”

In spite of the policy-driven downturn in housing demand, strong fundamentals continue to underpin the market. Demographics are highly favourable, especially the millennial generation who are now entering their household-forming years. In addition, low unemployment is leading to significant upward pressure on wages and, by extension, household wealth and confidence.

The pullback in BC home sales is helping alleviate a chronic shortage of supply. After trending at decade lows, active listings in the province were up nearly 20 per cent in July. The combination of slower housing demand and an increase in the inventory of homes for sale has trended most markets toward balanced conditions. This means more selection for home buyers, fewer multiple offer situations and less upward pressure on home prices.

Source – BCREA

No Comments

Bank of Canada Interest Rate Announcement – April 18, 2018

Bank of Canada Interest Rates Affecting Vancouver Real Estate

The Bank of Canada decided to leave the target for the overnight policy rate unchanged at 1.25 per cent this morning. In the statement accompanying the decision, the Bank noted that inflation is forecast to be slightly higher in 2018 than originally expected but will return to the Bank’s 2 per cent target once the impact of higher gas prices and minimum wage increases dissipate. While the mortgage stress test has been a contributor to weaker growth in the first quarter of 2018, the Bank expects the economy to be operating at above potential over the next three years, growing at an average rate of about 2 per cent.

Although the Bank held steady today, with inflation rising to the Bank’s two per cent target and many Canadian firms operating at or near capacity, interest rates are very likely headed higher this year. Headwinds from the trade sector have moderated, energy prices are higher and growth for the first quarter appears to be firming after a slow start. Given those trends, the Bank is likely to adjust its policy rate higher in coming months. That will translate to higher mortgage rates which, combined with the erosion of purchasing power from the mortgage stress test, will temper housing demand in 2018.

No Comments

New Mortgage Qualification Rules Temper Housing Demand

Mortgage Rules Vancouver Real Estate Demand

The British Columbia Real Estate Association (BCREA) reports that a total of 6,206 residential unit sales were recorded by the Multiple Listing Service® BCREA Mortgage Demand(MLS®) across the province in February, a 5.7 per cent decrease from the same period last year. The average MLS® residential price in BC was $748,327, up 8.8 per cent from the previous year. Total sales dollar volume was $4.64 billion, a 2.6 per cent increase from February 2017.

“More stringent mortgage qualification rules for conventional borrowers are dampening housing demand in the province,” said Cameron Muir, BCREA Chief Economist. “Since the new rules came into effect, BC home sales have fallen more than 26 per cent, on a seasonally adjusted basis.”

Previous mortgage policy tightening has negatively impacted housing demand for a period of four to seven months, with the largest impact occurring in the third month after implementation.

Year-to-date, BC residential sales dollar volume was up 15.9 per cent to $8.47 billion, compared with the same period in 2017. Residential unit sales increased 4.1 per cent to 11,516 units, while the average MLS® residential price was up 11.3 per cent to $735,755.

Source – BCREA

No Comments

Bank of Canada Interest Rate Announcement

Bank of Canada Interest Rates Affecting Vancouver Real Estate

The Bank of Canada opted to maintain its target for the overnight interest rate this morning at 1.25 per cent.  In the statement accompanying the decision, the Bank noted that although growth in the Canadian economy slowed more than expected in the fourth quarter of 2017, the economy is expected to operate at capacity going forward. The bank cited recent trade policy developments, mainly the threat of a trade war with the United States, as a significant risk to its outlook for growth and inflation.

The Canadian economy is at or very close to full-employment, meaning there is little room for Canadian firms to expand output without putting undue pressure on inflation. There are signs core inflation is already firming up.

Two of the Bank’s three core inflation measures are closing in on the Bank’s 2 per cent target and all three measures have increased significantly in the past six months. Absent any unforeseen challenges to the Canadian economy, monetary policy will be biased in the direction of higher interest rates.

However, the Bank will likely hold off raising its overnight rate while it assesses the impact of tighter monetary policy over the past year, the impact of newly implemented B-20 guidelines on mortgage qualification rules, and heightened risk to Canadian exports from US trade policy.

Source – BCREA

No Comments

Bank of Canada Interest Rate Decision – September 6, 2017

Bank of Canada - Vancouver Real Estate - PLACE Real Estate Team

The Bank of Canada announced this morning that it is raising its target for the overnight rate by 25 basis points to 1 per cent. In the press release accompanying the decision, the Bank noted that recent economic data have been stronger than expected but growth is forecast to moderate in the second half of the year.  On inflation, the Bank cited some excess capacity and temporary price shocks as factors keeping inflation below its 2 per cent target.Importantly, the Bank mentioned it will be paying particular attention to the evolution of the economy’s potential growth rate (meaning the economy’s estimated long-run growth rate) as well as to labour market conditions and the economy’s sensitivity to higher interest rates.

The Bank has now removed the stimulus it injected into the Canadian economy in 2015 to offset the impact of falling oil prices. With the economy expanding at a 3.5 per cent rate over the past year, that stimulus is clearly no longer required. The Bank seems to be more concerned about the potential for higher future inflation due to an over-heated economy than on the actual very low inflation observed in recent months. That leaves the door open for further rate increases should economic growth remain robust.

No Comments

Announcement on New Mortgage Regulations

New B-21 mortgage regulations announced

Many had their breath held as OSFI (Office of the Superintendent of Financial Institutions) released their draft for their latest round of mortgage regulations Monday April 15th. This time, for the first time in a long time, the proposed changes were quite… tame. Intentions of drastically changing mortgage lending criteria once again to put a damper on the Canadian housing market seems unlikely. The new items in B-21 are:

Cashback down payments not allowed on insured mortgages. No surprises yet, as these mortgages are considered high risk. Interestingly, borrowed down payment (assuming the borrower can qualify to carry the payments) is ok.

Lenders will be audited more frequently. OSFI is really looking for underwriters to be granting less exceptions and sticking with their lending guidelines more frequently. Unfortunately, this means that common sense lending will be heavily restricted – not good for many borrowers. Lenders with higher defaults will be audited more heavily.

Data Disclosure to increase. Insurers will be required to publicly disclose more stats every quarter related to the risks of the portfolio.

All in all, no big waves will crash through the markets but heavier pressures from OSFI to minimize exceptions will have an effect on borrowers that are “out of the box”. Unfortunately, the box seems to shrink all the time.

For more information contact our Vancouver Mortgage Expert – Kyle Green at www.kylegreen.ca

No Comments

Vancouver Mortgage Rate Update by Kyle Green

Bulk insurance limits restricting many lenders from lending on rentals

As you may have seen in previous newsletters or presentations of mine, CMHC has been close to their $600 Billion cap for quite some time. News first broke out in Feb 2012 that they were literally “running out of money” and that convincing Canadian citizens to guarantee even more insured mortgages wouldn’t be an option.

CMHC Mortgage Cap Graph - Adam Chahl & Kyle Green

So, CMHC began taking action to lower their insured book:

  1. Mortgage “run-offs” occur, which is insured mortgages coming up for renewal and becoming uninsured.
  2. Lowering bulk insurance. Bulk insurance is when lenders take a large bundle of mortgages with over 20% down and have CMHC insure them all. CMHC began putting restrictions on bulk insuring in early 2012.
  3. Changing lending guidelines. Round 4 of insured mortgage tightening occurred last summer, and although the headlines read something along the lines of “Flaherty wants the housing market to slow”, the undertones that should have been highlighted were “CMHC is running out of money and is restricting its availability to only A+ borrowers”.
  4. Insurance Portfolio Restrictions. This is an interesting one. There are HUGE costs to lenders going over their limits on how much of their insured book with any insurer for specific products. Most lenders can only have 10% of their book in insured rental mortgages. This is why many lenders have either completely cut off their rental products or have severely cut their program.

The reality is that because of new international guidelines (called Basel III), lenders are required to keep more money in cash for each dollar lent and kept on their own books. Lenders could, however, bulk insure these mortgages and sell them to investors, which would take them off the books and make them more profitable. That’s why sometimes the best mortgage rates are actually for borrowers putting less than 20% down (you pay the insurance premium, not the bank).

Final Thoughts: Unless bulk insurance opens up again, or lenders have more deposits on their books (unlikely when the returns are ~1% for GIC’s), lending on rental properties will continue to be tight. Rates going up could actually open up the door a little bit for rental mortgages to be more available. As I’ve said before, don’t worry about the rates (they’re fantastic right now!), worry about getting the money at all.

OSFI intervention runs deeper than expected

Government getting lenders to change guidelines, and most of them aren’t common sense

OFSI LogoThe Office of the Superintendant of Financial Institutions has been active in the markets since March of 2012, and have been intervening with lending guidelines for all uninsured mortgages. If you missed it, here are the changes they made that came into effect year end 2012 for all federally regulated banks (more on this later):

  1. Home Equity Lines of Credit reduced to 65% financing. You can still finance 80% of the value of your home, but only 65% can be “re-advance able” (as you pay down the principal, you can re-borrow against it).
  2. Variable rates qualify at the 5yr posted rate (currently 5.24%)
  3. “Stated Income” borrowers require reasonable income verification. If you are self employed and you don’t claim enough income on your tax returns to qualify, stated income programs were typically another route to go. These have become MUCH more difficult than in the past.
  4. Cash back mortgages – Cashback is no longer able to be used towards down payment (and subsequently the lenders offering this pulled these products off the shelves).

These guidelines were fairly well publicized and to most in the industry were made aware of these changes. However, over the past two months we have encountered more weird rules that we have been told (off the record of course) is due to government audits:

  1. Using a borrower’s Line of Credit limit, not balance, to qualify them. To give some perspective, a borrower with an empty $600,000 Line of Credit wouldn’t have to service any payments, but now the same LOC would have a massive $3,572 monthly payment to service, which would require an annual income of about $115,000 just to service. That’s ON TOP of any other loans, etc.
  2. Lenders asking for tax returns to verify rental income – if it isn’t being reported, they may not use it. Government trying to make sure people are paying their taxes? No, couldn’t be…
  3. Lenders asking for leases in place PRIOR to funding your mortgage. This can be a challenge when making a purchase. Some lenders will either use no rental income if there is no lease, or will only finance 65%.
  4. Property condition – Any hints on the MLS, in the strata minutes or appraisal of a sub-par property, and the lender is out. Anything below average will likely not get financed by a major bank.
  5. A general increase in documentation. Like we need to ask for more! Some of our clients have to provide (literally) 200+ pages of documents when you add up 2 years of tax returns, company incorporation documents, financial statements, leases for each property, mortgage statements, property tax notices… you get the idea.

Final Thoughts: I get the feeling that there is a bit of an “over-correction” here with regards to OSFI getting their hands dirty here. The above changes do not apply to all lenders, and for the ones that it does apply to we have already come up with a couple of ways to get around them. Look for things to stay tight for 6 – 12 months or so and a general loosening of the above requirements to follow.

Kyle Green Vancouver Mortgage Broker Signature

Kyle Green is a Vancouver Mortgage Expert, and one of the best in the business. You can reach him at: +1 778 373 5441 or by his website: www.kylegreen.ca. Oh and he’s currently securing 10yr fixed rates under 4% for our clients!

No Comments

Are tighter mortgage rules hurting our economy?

A study from the Canadian Association of Accredited Mortgage Professionals (CAAMP) has highlighted the effect of Ottawa’s latest mortgage changes on the housing market here in Canada. Thy cite an average resale activity decline of 8% between August and October of this year, and the same period a year ago.

The major change that affects the most Canadians was the decision to reduce the maximum amortization period of insured mortgages (those clients putting less than 20% down) from 30 years to 25 years. The main benefit was reducing the monthly payments, and qualify for a larger loan, as the interest for the loan would be paid over a longer time period.

CAAMP looked at mortgages funded in 2010, and noted that under the new, changed rules, 17% of mortgages would not qualify today. This included 11% of high ratio home buyers who, under the new 25 year maximum amortization, would not qualify.

My concern is that a policy-induced housing market downturn creates unnecessary risk that directly affects not just housing but job creation and the economy as a whole

“This smaller number of first time buyers is already impacting the resale market, which in turn threatens to dampen economic activity more broadly,” said the group, in a release.

CAAMP surveyed 2,000 mortgage holders, and found that the ‘vast majority’ were acting responsibly with their debt, the main concern with the mortgage changes lie with them affecting the market, job creation and economy as a whole, rather than just first time buyers who are looking to get into the market.

People who are looking to trade up in the housing market will also feel the pinch, as they find a dried up pool of first time buyers, who would at one time be able to snap up their properties.

Lower rates have been good for Canadians too. Of the respondents who renewed in the last year, 61% saw a reduction in their interest rate.