BALANCE IN JUNE

Fewer home resales in June in a more balanced market: real estate association
By LuAnn LaSalle
The Canadian Press July 16, 2012

The number of Canadian homes sold last month dropped more than four per cent from the level in June 2011, the first year-over-year decline in sales volume since April 2011, the Canadian Real Estate Association said Monday.

Resales of homes were also down 1.3 per cent in June from May — the second month-to-month decline — with a total of 46,444 transactions through CREA members. That was down from 48,591 in June 2011, the association said.

"Canada's housing market lost a little altitude in June, but it's still flying pretty high," association president Wayne Moen said in a news release.

"That said, sales activity and average prices bucked the national easing trend in a number of markets, which underscores that all real estate is local," Moen said.

The national average home price in June was $369,339, down 0.8 per cent from the same month last year, CREA said.

Prices increased in Calgary, remained strong in Toronto and continued to slow in Vancouver.

However, CREA said its MLS Home Price Index — which the association says is a better measure because it adjusts for different types of properties sold — increased 5.1 per cent between May and June 2012.

There have been several reports saying some real estate markets and some types of housing are over valued, although there's a range of opinions about how much and how quickly prices will decline.

Economists and consumers have been closely watching for signs that demand has softened to the point where prices will start going down.

But the association, which represents real-estate boards and associations that handle most of the country's property transactions through the MLS system, said Monday the decline in sales activity and an increase in new listings resulted in a "more balanced" national housing market in June.

The number of newly listed homes rose 1.4 per cent in June compared to May, led by the Toronto market. Some 42 local markets, out of 100 markets across the country, registered a monthly increase in new listings of at least one per cent, the association said.

RBC senior economist Robert Hogue noted the resale market eased again in June but the number of homes newly listed for sale rose 1.4 per cent last month.

"Market conditions, therefore, eased a little, providing more breathing room for Canadian buyers," Hogue said in a research note.

"Despite this easing, the demand-supply equation continued to be balanced in the majority of markets in Canada. The previously tight Toronto market became much more balanced, whereas the Vancouver market inched closer to conditions favouring buyers," Hogue said.

In the first half of 2012, a total of 257,193 homes traded hands over Canadian MLS Systems, up 4.7 per cent from the same period in 2011.

Gregory Klump, CREA's chief economist, said home buyers didn't rush to make purchases before the latest restrictions on mortgage regulations came into effect in July.

"That's a big change compared to what we saw as a response to previously announced changes," Klump said.

"It will take some time before the compound effect of previous and recent changes to regulations on Canada's housing market becomes apparent."

Hogue also said that going forward this year he expects home resales to ease in light of the latest mortgage restrictions.

"This moderation trend will become more entrenched next year when we expect the Bank of Canada to begin normalizing its interest rate policy."

Under new mortgage rules announced in June by Finance Minister Jim Flaherty, borrowers will be allowed to use up to 80 per cent of their property's value as collateral for home-equity loans, down from 85 per cent.

In addition, the maximum amortization period dropped to 25 years from 30 years for government insured mortgages.

Flaherty also said government-backed mortgage insurance will be limited to homes with a purchase price of less than $1 million.

Photo By: the past tends to disappear

STARTING JULY 9, 2012

Ottawa tightens mortgage rules to avert household debt crisis
By Jason Fekete
Postmedia News Jun 21, 2012

OTTAWA — The federal government is moving once again to tighten mortgage-lending rules amid lingering concerns about an overheated housing market and rising household debt levels.

In a decision called for by some of the big banks — and one that’s expected to soften housing prices — Finance Minister Jim Flaherty announced Thursday the federal government is reducing the maximum amortization period for a government-insured mortgage to 25 years from 30 years.

It’s the third time the Harper government has reduced the maximum amortization period in the last four years, after it initially increased the lengths of mortgage terms to make it easier for Canadians to purchase homes.

The government has since ratcheted it back from 40 years to 35 in 2008, and then further reduced it to 30 years in 2011.

Banks will still be allowed to offer 30-year amortization periods on low-ratio mortgages that include a downpayment of 20% or more.

The changes will see the government lower the maximum Canadians can borrow against their home to 80% of its value, from 85%, in an effort to encourage them to keep more equity in their homes.

As well, under the new rules, to qualify for a mortgage loan Canadians can spend a maximum of 39% of their gross household income on home expenses such as mortgage, property taxes and heating, and a maximum 44 per cent of income on housing expenses and all other debt.

Flaherty also announced Ottawa will limit government-backed insured mortgages to home purchases of less than $1-million.

A downpayment of at least 20% will be required on mortgage loans for homes priced at or above $1-million.

Reducing the amortization period will increase monthly payments, but reduce the amount of total interest paid on a mortgage. Ottawa expects the change from a 30-year to 25-year amortization will, on a $350,000 mortgage loan at four per cent, increase the monthly payment $177 but reduce total interest costs by nearly $47,000.

The government believes less than five per cent of home buyers will be affected by the clampdown.

The new rules take effect July 9, 2012.

“We watch carefully, we monitor the market carefully. I remain concerned about parts of the Canadian residential real estate market, particularly in Toronto, but not only in Toronto, so that is why we are intervening once again,” Flaherty told reporters in Ottawa.

“It’s our job to try to be ahead of things and act in a measured way, listening to the market. And I have been listening to the market, and quite frankly, I don’t like what I hear, particularly in the condo market.”

Flaherty said the government’s moves are part of an effort to “moderate behaviour” among Canadian homeowners and make them reflect before jumping into the housing market at the high end.

Canada’s largest city is seeing continuous home building because of persistent demand, he noted, which is accelerating prices and eroding affordability.

“This concerns me because it’s distorting the market, quite frankly,” the minister added. “My judgment is that we need to calm particularly the condo market in a few Canadian cities.”

Statistics Canada reported last week that the ratio of Canadian household debt-to-income continued increasing in the first quarter, to 152 per cent from 150.6 per cent in the fourth quarter of 2011. That came on the heels of a warning from the Bank of Canada that high household debt levels remain the most important domestic risk to financial stability.

Opposition parties said Thursday the Harper government, with its changes to mortgage rules, is simply retreating from its own decision to ramp up the amortization to 40 years after taking power in 2006.

“This is Mr. Flaherty versus Mr. Flaherty. He has done all of this. He’s the guy who has let it go up and is now bringing it dramatically down again. We are now at the same situation we were — what do you know, 2006 — where we had 25-year mortgages,” said interim Liberal leader Bob Rae.

“There’s going to be a real issue as to exactly what message this is sending to markets and what impacts it will have.”

Flaherty and some of the country’s leading economists have for months been warning that they remain worried about Canada’s housing market and rising household debt.

In March, prior to delivering the federal budget, Flaherty met with 13 private-sector economists for his traditional pre-budget consultation to get their assessment of the Canadian economy.

Some of the big banks suggested at the time the federal government consider implementing “measured actions,” such as reducing the maximum amortization period for government-insured mortgages back to the traditional 25 years.

On Thursday, the banks largely welcomed the measures.

“Overall we see (Thursday’s) announcement as a much better substitute to interest rate hikes since the moves are aimed with almost surgical precision at the margins of the mortgage market,” Benjamin Tal with CIBC World Markets said in a research note.

“The combined impact of the four changes will not be large enough to derail the housing market, but are clearly significant enough to soften activity, and at the margin will act as a negative for house prices —mainly at the mid-range segment of the market.”

Frank Techar, president of personal and commercial banking at BMO Financial Group, called the changes “prudent, measured, responsible, timely.”

“Minister Flaherty has tapped the brakes at precisely the right time and his actions should help ensure Canada’s housing market experiences a soft landing,” Techar said in a statement.

MORTGAGE INSURANCE NEWS

CMHC could be pulled out of mortgage insurance business, Flaherty says
By Garry Marr
Financial Post Apr 27, 2012

Finance Minister Jim Flaherty would consider taking Canada Mortgage Housing Corp. out of the mortgage default insurance business he told the National Post’s editorial board.

“Over time, I don’t think it’s essential that a government financial institution provide mortgage insurance in Canada. I think what’s key is that mortgage insurance is available at a reasonable cost in Canada. I think there is a role to regulate but whether we, the Canadian people, have to be the owners and shareholders of a financial institution to do this is a question. I don’t think it’s essential in the long run.”

He offered no timetable on when the government could get out of mortgage default insurance business, just offering it up as a possibility. “We have a list of Crowns, Crown agencies that are being reviewed,” said Mr. Flaherty.

In a wide-ranging discussion on the housing market, he said he has no plans to increase CMHC’s current $600-billion loan limit, ruled out any possibility of regulating foreign real estate investment and made it clear his focus is on the governance of Crown corp. which controls about 75% of the mortgage default insurance business in the country.

“For some time now I’ve had concerns about the large commercial role that CMHC now plays. CMHC has become a significant Canadian financial institution. As you know, historically it was created with a mandate post-war to advance housing in Canada. It’s become much more that.”

The finance minister moved this week to tighten control of CMHC, placing it under the authority of the country’s banking regulator, the Office of the Superintendent of Financial Institutions. Previously, it fell under the watch of the Department of Human Resources and Skills Development.

The shift comes with CMHC closing in on the $600-billion limit the government has for how much of its portfolio will be backstopped by the taxpayer. Three years ago it was $450-billion.

By law, consumers must buy mortgage default insurance if they have less than a 20% down payment on a home and are borrowing from a federally regulated financial institution.

But CMHC has not been insuring just those loans, it has agreed to step in and insure loans — with the premiums paid by financial institutions — for lower-ratio mortgages, or what is called “portfolio” or “bulk insurance.”

He said the head of OFSI will now have the power to look at the books of CMHC the way she looks at the books of other private financial institutions in Canada. Already, the government has placed the deputy minister of finance on the board of CMHC.

“We have quite a bit of information about what the banks do and don’t do. [Superintendent] Julie Dickson had to go to some of them in the last year and say ‘you must ensure that your board policies on residential lending mortgages are carried through,” he said. “She’s quite a strict supervisor which is good for our country.”

OSFI has already been looking into CMHC and established one of the key issues for the organization is governance. “OFSI are certainly of the view there are necessary governance improvements we can do,” said Mr. Flaherty.

He made it clear there are no plans to extend CMHC’s $600-billion limit. “For a while,” said Mr. Flaherty, about how long the Crown corporation would have to exist under that limit. It was at $541-billion at the end of the third quarter of last year but business has slowed as the agency culled its portfolio business.

Mr. Flaherty’s own opinion on the housing market is that has been fuelled by low interest rates which he says he does not control. “Cheap money,” he said, noting he did talk to the banks about being unhappy about their mortgage rate wars earlier this year which had reduced the rate on a five-year closed mortgage to below 3% — an all-time low.

As to whether the market has been in part fueled by foreign buyers, as many in the real estate industry have suggested, Mr. Flaherty said his government will not get involved in that aspect of the market. “No,” he said, pausing to emphasize the point. “I don’t think there is [a role]. They key in housing from my point of view is to get the best information on housing.”

MORTGAGE FIX

Flaherty calls on banks to ‘fix’ mortgage market
Reuters
April 4, 2012

Canada’s finance minister said on Wednesday he would rather not tighten mortgage rules again to curb high household debt and that banks themselves are taking on that job by becoming more strict with their lending criteria.

Jim Flaherty said he has seen signs of moderation in the Toronto condominium market and expects to see a similar trend in Vancouver, one of the country’s hottest real estate markets.

“Part of that is based on what I’m being told by people who build condominiums, and also what I’m being told by some of our banks about their standards becoming more stringent with respect to their loans for condominium development,” Flaherty told reporters in Vancouver after making a speech there.

Flaherty said it was up to markets to “fix” the housing and debt problem, not the government.

“I’ve tightened up the mortgage insurance market three times … I really don’t want to do it again,” he said.

“And I’m glad that some of the banks – at least one of the bank executives yesterday indicated that he agreed that actually the banks should exercise prudence and not rely on government to do it for them,” he said.

Bank of Nova Scotia Chief Executive Rick Waugh said on Tuesday that the simmering housing market gives reason for caution, but that it’s up to the country’s banks, rather than the government, to manage the risks of their massive mortgage portfolios.

Several other bank executives – Toronto-Dominion CEO Ed Clark in particular – have said they would welcome further government moves on mortgages.

The government and central bank have been warning Canadians of the dangers of taking on too much debt, particularly through mortgages, at a time of historically low interest rates and high housing prices. The ratio of debt to personal disposable income hit a record high last year and has moderated somewhat since then.

Despite some resemblance to the U.S. housing market prior to the crash, most economists expect a soft landing in Canada.

Flaherty has tightened rules three times since 2008 in the mortgage insurance market but left them untouched in the federal budget last week, to the surprise of many.

The budget did propose enhanced supervision of the federal housing agency that issues mortgage insurance. Flaherty said the banking regulator, the Office of the Superintendent for Financial Institutions, was studying the matter.

ON GUARD FOR THEE?

Canada stands ready to tighten mortgage rules: Flaherty
By Randall Palmer
Reuters Mar 22, 2012

STITTSVILLE, Ontario – The Canadian government, dealing with signs of an overheated property market, is ready to tighten mortgage insurance rules again if necessary, Finance Minister Jim Flaherty said on Thursday.

Mr. Flaherty also chided bank executives for asking the government to impose more restrictions, noting that the banks are the entities that offer mortgages.

Canada’s banking regulator, trying to curb risks posed by record-high levels of household debt, said this week it wanted lenders to be more transparent about their mortgage businesses.

Mr. Flaherty has imposed tougher requirements for government-backed mortgages three times since 2008.

“With respect to tightening up the mortgage insurance market we’ve done it three times … and we watch, we monitor the market, and if we have to tighten it some more we will,” he told reporters in Stittsville, Ontario.

“The new housing market produces a lot of jobs in Canada so there’s a balance that needs to be addressed. I’d like the market to correct itself, quite frankly, if it can.”

Mr. Flaherty said he had noted indications of softening in the Toronto condominium market, which he said was a good sign.

Canada’s household debt-to-income ratio hit a record high of 151.9% last year, largely the result of mortgage borrowing. The ratio dipped slightly in the fourth quarter but at 150.6% was not far off the record.

Mr. Flaherty said “it was a bit odd” that some banks were pressing him for tighter rules.

“We have bank executives in Canada saying ’You know, really the rules on insured mortgages should be tightened up’. They must forget that they are actually the ones that issue the mortgages — it’s their market, it’s not my market,” he said.

Since 2008, Mr. Flaherty has lowered the maximum amortization period for new mortgages to 30 years from 40 years, raised minimum down payments required to qualify for government insurance, and required all borrowers to qualify for a five-year fixed-rate mortgage to get insurance.

If he decided to act again, Mr. Flaherty could announce new measures in his March 29 budget.

Mr. Flaherty, who has promised to cut spending to eliminate the federal government’s budget deficit by the 2015-16 fiscal year, said he would be proposing moderate cutbacks in the budget.

“This is not an austerity program,” he said, adding the focus would be on long-term growth, prosperity, innovation and sustainable social programs.

NEWS FROM THE HILL

Ottawa toughens mortgage rules
By Andrew Mayeda
Postmedia News January 17, 2011

OTTAWA -- Finance Minister Jim Flaherty is cracking down on Canadians' ability to qualify for a mortgage, in the government's latest attempt to rein in consumer debt.

Flaherty announced Monday the government is reducing the maximum amortization period for government-backed mortgages to 30 years from 35 years. The change will affect mortgages with loan-to-value ratios over 80 per cent.

Canadians will only be able to borrow up to 85 per cent of the value of their homes, down from 90 per cent.

In addition, the government is withdrawing backing for lines of credit secured by people's homes.

Flaherty said the changes are designed to prevent the kind of housing bubbles that developed in other countries, most notably in the United States, where the collapse of the subprime mortgage market triggered the global financial crisis.

"The main reason we're taking the action is for the longer term, that we avoid even the beginning of the development of the kinds of issues in some other countries that have been very damaging to families," the minister told reporters after unveiling the mortgage changes.

Flaherty said the decision was based on the long-term goal of protecting household finances and the broader economy, rather than on any particular data on the housing market.

A number of economic observers, including Bank of Canada Governor Mark Canada, have recently expressed concern about the record-high debt levels of Canadians. Based on the ratio of debt to income, Canadians are actually deeper in the red than American households, which are still struggling to dig themselves out from the debt taken on before the financial crisis.

Flaherty said Canadian families must keep in mind that interest rates will eventually rise from their relatively low levels. Economists have expressed concern that a sharp rise in interest rates could leave Canadians stranded with too much debt.

"I think people need to demonstrate that good Canadian trait of prudence and reasonableness and common sense in terms of their debt assumption," said Flaherty.

Speculation has been building about whether the opposition parties will support the government's upcoming federal budget. The NDP, for example, has outlined a series of proposals, including help for Canadians' home-heating bills and the revival of the home-renovation tax credit. But Flaherty said the government doesn't plan to bring back the popular renovation credit, which was part of the government's economic-stimulus program.

Last Friday, Prime Minister Stephen Harper acknowledged his government was considering changes to the rules governing mortgages. He said the government "remains concerned about growth in the level of household debt.

In February 2010, Flaherty moved to toughen up the mortgage rules amid worries that Canada was in the midst of a housing-market bubble. The reforms, since introduced, compelled borrowers to meet standards for a five-year fixed-rate mortgage, even if the buyer wanted a shorter-term, variable rate loan.

They further required purchasers of rental properties to issue a 20 per cent down payment as opposed to five per cent. The moves played a role, observers say, in slowing down real-estate activity. While the federal government looks to curb borrowing, economists say the Bank of Canada may have to follow by raising its key interest rate sooner rather than later.

The central bank issues its latest rate statement Tuesday and it is expected to hold its benchmark rate at its present one per cent level as signs indicate the economy may be benefiting from renewed business and consumer confidence in the United States.

The tightened mortgage rules take effect March 18, 2011. Under federal law, lenders must obtain mortgage insurance when homebuyers pay a down payment of less than 20 per cent of the purchase price of the new home. The government then backs the insured mortgages. The new changes apply to such government-backed mortgages.

The withdrawal of government insurance on home-equity lines of credit takes effect April 18.

"Taxpayers should not bear any risk related to consumer debt products unrelated to house purchases. Those risks should be managed by the financial institutions that originate and offer these products," Flaherty said.

Changes to take affect this spring

The New Measures:

- Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent.

- Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes.

- Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs.

Photo By: Digital Agent