New mortgage rules to curb debt

Updated: Mon Jan. 17 2011 9:05:48 AM

CTV.ca News Staff

Finance Minister Jim Flaherty announced new rules for Canadian mortgages on Monday that he said will "protect the stability of the economy."
Flaherty's announcement comes on the heels of a recent warning from the Bank of Canada that Canadians' domestic debt burden is the highest on record.
The Monday announcement included three new rules for the mortgage industry:

• Mortgage amortization periods will be reduced from 35 years to 30 years.
• The maximum amount Canadians can borrow to refinance their mortgages will be lowered from 90 per cent to 85 per cent of the value of their homes.
• The government will withdraw its insurance backing on lines of credit secured on homes, such as home equity lines of credit.

"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 practices," Flaherty said Monday.
The new restrictions are intended to ensure that Canadian don't slip into unmanageable debt, which could throw the economic recovery off the rails, he said.
"Today's measures are about our government continuing to protect the stability of the economy by ensuring lenders' practices are sustainable, which will in turn ensure Canadian families have increasingly secure and sustainable home ownership."
"This will also help increase the savings of Canadian families, savings of tens of thousands of dollars over the life of a mortgage."
BNN's Michael Kane said Flaherty is clearly concerned that Canada's low lending rates have inspired people to borrow more than they would normally.
"What he is saying, and he reiterated this two or three times, is we see Canadians borrowing to the max at record low interest rates, and what he is afraid of is that when interest rates to start to rise...then you can get into a dangerous situation where you can't pay down your mortgage," Kane told CTV's Canada AM.
The Bank of Canada announced earlier this month that Canadians' domestic debt burdens had hit the highest levels on record. The bank said the ratio of household debt to disposable income has reached 147 per cent.
Canadian household debt is now at $1.4 trillion, while mortgage delay payments have increased by 50 per cent.
The International Monetary Fund recently warned that household debt is the number one risk to the Canadian economy.

The Real Estate Market

During the period 1980 through 2009, the Canadian real estate market grew at a compound annual growth rate of 9.7%. The Canadian market has been resilient, with only two significant downturns occurring prior to 2008 – in 1990 and 1995 – both of which returned to pre-downturn levels within 24 months. The duration of these market downturns were 13 months and 14 months, respectively, with decreases of 26% and 21%, respectively. The market declined 18% during the 16-month period February 2008 through May 2009 but then experienced strong year-over-year increases through the second quarter of 2010 when it began to cool off.

Canada’s residential real estate market remained strong throughout the first half of 2010 as economic conditions across the country improved, the stimulus of low interest rates continued to stoke demand, and buyers in Ontario and British Columbia accelerated purchases to beat the HST which was effective July 1, 2010. A number of factors were bringing the market back into balance in the second half of the year, when the rate at which home prices were appreciating was moderating considerably. These factors include the gradual erosion of affordability driven by higher house prices and the expected modest upward movement of interest rates, and an improvement in listings supply as more Canadians felt confident in the economy and were prepared to list their homes and move. The tighter standards for mortgage approvals and other similar measures that were implemented by the federal government in the spring have contributed to moderating demand. We support these modest measures designed to help protect consumers from becoming overleveraged.

The Canadian Real Estate Association (CREA) reduced its forecast in November 2010, noting that housing demand and supply is stabilizing. It forecast that unit sales of MLS-listed housing would decline 4.9% in 2010 and 9% in 2011. As for housing prices, CREA forecast the national average to rise 3.1% in 2010, but decline 1.3% in 2011 reflecting modest average price gains in all provinces but BC, Alberta and Ontario.

Renovation of a modern Gothic home

From Friday's Globe and Mail
Published Thursday, Dec. 16, 2010 10:59PM EST

 

Home-builders in Victorian Toronto had very specific ideas about the way people should live their lives.
Dad was supposed to go out to work. Mom stayed home, tending to domestic chores and the needs of her preschoolers. The usual layout of the Victorian house reflects this division of labour. One rarely finds, for example, any provision for live-in servants or nannies in Toronto’s ordinary houses from this period. (The mansions of Rosedale are another matter.) Nor is there an equivalent of the modern family room or home office.
Family socializing in the pre-radio age was a starchy affair that occurred around the hearth in the parlour and in the dining room, both rooms clearly segregated from each other, and from the kitchen. Parlour and dining room were schools of propriety and respect for hierarchy (God, Queen, Empire and Dad). The dark little kitchen at the rear of the house, on the other hand, was the mother’s workshop of meal production – a place of gendered toil, that is, not really suitable (and hardly big enough) for family gatherings.

CONTINUE TO READ THE ARTICLE ON THE GLOBE AND MAIL

Strengthening Economic Recovery and Low Interest Rates Point to a Stronger Than Anticipated 2011 for Housing Market

Prospect of rising mortgage rates may prompt heightened buyer activity early in the year, according to Royal LePage forecast

TORONTO, January 6, 2011 – The average price of a home in Canada increased between 3.9 and 4.6 per cent in the fourth quarter of 2010, compared to the previous year, as markets shrugged off a lackluster third quarter and returned to a post-recession growth profile. Home values are forecast to continue a moderate and steady climb in many of the country’s key housing markets through 2011 with sales activity skewed to the first half of the year, according to the Royal LePage House Price Survey and Market Survey Forecast released today.

The low cost of borrowing stimulated the housing market in 2010, and this trend is predicted to continue in the first half of 2011. The widely held consumer belief that rates will rise in the latter part of 2011 may prompt an increase in buying activity early in the year.
“Trends in the housing market continue to be driven by the lingering after-effects of the recession,” said Phil Soper, president and chief executive of Royal LePage Real Estate Services.  “Canadians realize that interest rates are unsustainably low and that homes will become effectively more expensive when mortgage rates return to normal levels.  We will likely see more price appreciation early in 2011 as some buyers complete transactions in advance of anticipated higher borrowing costs.”

Soper added, “2011 is expected to unfold much like 2010, when close to 60 per cent of sales volume occurred in the first half of the year in anticipation of interest rate increases that never materialized. However, housing market activity in the first half of 2011 will be modestly closer to the norm, as last year’s phenomenon was exacerbated by mid-year tightening of mortgage accessibility and the introduction of HST in Ontario and British Columbia.”
Regionally, the strongest price appreciation of the cities studied is expected in mid-sized urban centers where affordability is better than the national average. For example, in Winnipeg, St. John’s and Fredericton, two-storey homes below $300,000 are still widely available. Demand in these cities is expected to be strong, putting upward pressure on home values.

Cities in Alberta are expected to be among Canada’s strongest performing markets in 2011. Woes in the historically volatile region’s housing market stretch approximately five years, when the Alberta housing market suffered a sharp correction following several years of double-digit price increases.  The province’s energy-driven economy staged a comeback in 2010, recovering from the recession-led plunge in oil and gas prices.  Major employers are expected to steadily increase hiring in 2011 which should attract new residents to the province and put upward pressure on the limited supply of housing. Royal LePage forecasts the average price of a home in Calgary will increase 5.4 per cent through 2011 while Edmonton home prices will increase 3.3 per cent. Home sale transactions are predicted to rise 6.7 per cent in Calgary and 9.1 per cent in Edmonton over the same period.
Across Canada, the average price of a home is forecast to rise 3 per cent over the coming year to $348,600 while the number of transactions is expected to drop 2 per cent.
During the fourth quarter of 2010, average home prices either increased or stabilized year-over-year, with Winnipeg, Ottawa, Montreal and St. John’s seeing the biggest gains.  Nationally, the average price of detached bungalows rose to $324,531 (up 4.6 per cent), the price of standard two-storey homes rose to $360,329 (up 4.4 per cent), and the price of standard condominiums rose to $226,746 (up 3.9 per cent), compared to the fourth quarter of 2009.

Mr. Soper continued, “Like many Canadians, we anticipated an end to the ultra-low interest rate era before year-end 2010.  Paradoxically, global economic weakness, particularly in the United States, allowed policy makers and financial institutions to keep borrowing costs low, resulting in a stronger Canadian housing market and a better than forecast fourth quarter.”

House prices surveyed in Toronto increased modestly year-over-year. Standard two-storey homes witnessed the largest increases at 5.6 per cent. Market activity slowed in the second half of the year as buyers rushed to the market in the first half of the year in anticipation of interest rate hikes and HST.  For 2011, price increases are expected to be very modest at approximately 1 per cent.

"Soft landing" arrives for Canadian housing industry

TORONTO — Canadian new home construction in 2010 finished 29% ahead of last year’s pace, but the "soft landing" many in the industry have been predicting appears to have finally arrived, based on data from Canada Mortgage and Housing Corp.

The Crown corporation said December starts were 171,500 on a seasonally adjusted annualized basis, down from 198,200 a month earlier. CMHC would not provide annual statistics for 2010 because the numbers will be revised later this month but economists pegged actual homes built in 2010 at about 192,500.



It’s a pretty big increase,” said Bob Dugan, chief economist of CMHC, comparing this year’s starts to the 149,081 in 2009. “It was a pretty strong recovery. It was kind of expected once the economy recovered and the jobs were being created again. There was a certain amount of pent up demand.”

Still, with CMHC forecasting only 175,000 starts for this year, it is starting to look like the glory days of the last decade, when starts hit 200,000 annually for seven straight years, are well behind us.

“I would call it a soft landing, what we are forecasting for 2011. The reason I say that is starts hitting 175,000 is pretty much in line with household formation,” said Mr. Dugan.

The economist says “never says never” but he can’t see the market having a similar bull run again. “You look a longer time projections of populations with baby boomers aging and going into retirement and the generations behind them being smaller we just won’t have the population growth to sustain that level of housing starts.”

CMHC actually has a range for its 2011 forecast with 148,00 on the bottom end and 203,000 on the top end. Mr. Dugan says a major change in the economy like another credit crunch would drive us to that lower number while the high end would need stronger than expected economic growth in the United States.

Toronto-Dominion Bank economist Sonya Gulati says the second half of 2010 was more of what economists had been expecting in terms of a downturn in the housing market. “Recent homebuilding activity supports our view that the market has begun to gradually correct itself, but in an orderly fashion consistent with a soft landing. We continue to believe that homebuilding activity will take its cue from the resale housing market such that both ease in 2011, before a pick up in activity in 2012,” said Ms. Gulati.

Year-end statistics from the Canadian Real Estate Association, which tracks the existing homes market, are not due out until mid-month but its statistics have been showing year over years sales declining by about 20% for a few months.

Even the president of the Canadian Home Builders’ Association Victor Fiume said he was actually surprised by the strength of the market in 2010 and called it a good rebound year.

“A lot of the deals that were done were already bought and paid for,” says Mr. Fiume, noting some of the construction now is from previous sales. “It’s softening. We see that on the ground. People are being cautious about their attentions. Purchasers are cautious, buyers are cautious. So far, that caution has held us in good stead.”