CanEquity Blog on Residential Mortgages

Amid all the dire predictions of a housing market collapse due to home devaluation, one credit agency is breaking from the pack to say most Canadian households will be fine if their home loses value – it's the job market they've got to look out for.

The average Canadian household would be able to withstand a drop of up to 40 percent in value, said credit rating agency DBRS. This finding from a recent report flies in the face of many of the nation's top regulators and financial rulemakers who have been reluctant to implement any changes that could slow the housing market too quickly and trigger an extreme over-correction in home prices.

DBRS stuck to its guns, however, noting that a 40 percent loss in value would certainly put added pressure on Canadians, but would likely not affect the overall rate of default on the nation's home loans. Even rising interest rates, like those called for recently by the Organization for Economic Co-operation and Development, would not have too large an impact on the country. Continue reading »

As more people are turned off from dealing with big banks, many financial services – including home loans – are shifting to the internet, according to The Montreal Gazette.

Technology, particularly cellphone technology, that can perform many bank functions wirelessly and online has been emerging in greater volume over the last few years, and with it the opportunity to conduct financial transactions without dealing directly with a bank, the source reported. One recent agreement between banks has paved the way for consumers to make credit card purchases on their smartphones. Homebuyers could soon sign for mortgages with a digital signature from their home computer, according to the Gazette.

"The technology exists," Yvon Audette, an IT advisory partner at KPMG Canada, told the source. "The only [action] I can't think about how to do digitally is a bank draft or a certified cheque. All the other bits and bytes exist to do everything digitally. So I think there's just a matter of time."

Canadians who are sick of dealing with big banks but prefer human interaction in their homebuying transactions should consult with certified mortgage brokers. Brokers have access to a large network of lenders and can help consumers get the best mortgage rates available.

The housing market continues to be the "biggest story in Canada," according to some industry experts. Recently, the Organization for Economic Co-operation and Development urged the Bank of Canada to raise interest rates sooner than later in order to cool off some of the hotter markets.

According to OECD economist Peter Jarrett, current efforts from Ottawa to slow down the market aren't working fast enough in hot spots like Toronto, where people are still taking advantage of low mortgage rates. While stricter lending rules and increased oversight of the Canadian Mortgage and Housing Corporation may be doing the trick in some areas of the country, OECD said in a report released May 21 that raising the nation's overnight lending rate this fall would go a long way toward slowing rapid housing growth.

"We feel that at least in the hottest real estate markets, particularly Toronto, that that would be a good signal that people should think twice about continuing to leverage up in order to buy more house than maybe they really need," Jarrett said. Continue reading »

Canadian homebuyers know that, when it comes to housing, they should always listen to their mortgage broker. Now, the nation's banking regulatory agency might want to heed their advice as well.

New rules proposed by the Office of the Superintendent of Financial Institutions would present a "significant, significant change" to the way mortgages are refinanced, according to Jim Murphy, head of the Canadian Association of Accredited Mortgage Professionals. The OSFI is proposing that banks reevaluate borrowers' income levels and employment status, as well as reassess home values every time a homeowner attempts to refinance his or her mortgage. Most mortgage renewals are based on past payment history, and revised borrower assessments are almost never made.

“CAAMP strongly recommends that this concept be clarified so that mortgages continue to be renewed at maturity without requalification,” the organization said in a letter to the OSFI. "If not, homeowners who have been in compliance may no longer qualify. This would result in a number of properties hitting the market at the same time thereby driving down prices." Continue reading »

As more Canadians heed the warning against over-borrowing in the face of low interest and mortgage rates, big banks are beginning to feel the pinch.

Over the last few years, as the housing market expanded and more people took out home loans, big banks saw their rate of growth increase considerably. Even through the first quarter of this year, banks enjoyed strong earnings. New regulations governing the Canadian Mortgage and Housing Corporation coupled with dire predictions of a housing bust from ministers and financial executives have curbed consumer borrowing, however, and most of the country's major institutions are expected to report significantly lower earnings during the second quarter.

While activity at the big banks may be tempering due to stricter rules on mortgage insurance from CMHC, secondary lenders and mortgage brokers may see their market share heating up. A recent market trend analysis from the Financial Post indicated some of the big banks may be getting out of the mortgage broker game as lending restrictions tighten. This could be good news for Canadians hoping to get a home loan without the hassle of dealing with a big bank.

A plan to increase oversight of the Canadian Mortgage and Housing Corporation has received mixed reviews in Ottawa, but at least one major housing official has signaled his support for the measure: CMHC President Karen Kinsley.

Speaking before the senate banking committee May 17, Kinsley said the increased oversight would lead to stabilization of the country's housing market, according to The Wall Street Journal. Despite a lengthy testimony, the subject of a possible housing bubble did not come up. Rather, Kinsley highlighted the CMHC's current levels of capital, reiterating that the agency has a significant monetary buffer against insolvency. A CMHC report issued earlier this year showed the agency has twice the capital required under regulations set forth by the Office of the Superintendent of Financial Institutions, reported the Journal. Continue reading »

Many Canadians dream of owning a recreational property, where they can retreat to enjoy nature or a change of scenery. When it comes to financing those purchases, though, Canadians are split on the best way to turn that dream into a reality.

More than half of those who intend to buy a recreational property in the next five years or so said they would be willing to rent out the property to offset some of the ownership costs, according to a recent survey from Royal LePage Real Estate Services. Other potential methods would-be homebuyers said they would use to afford their dream homes include cutting back on discretionary spending or going in on a purchase with family and friends. One in four indicated they would like to buy land and build a home at a later date.

The story is different among those who actually own recreational properties, the survey found. Despite the willingness of would-be buyers to rent out their homes, only 17 percent of current owners do so. A further 10 percent said they would like to rent out their recreational property, but haven't done so. Continue reading »

Existing home sales in Canada inched up in April, piggybacking on the Toronto and Calgary markets, which handily outpaced the rest of the country, according to the Canadian Real Estate Association.

From March to April, home sales climbed 0.8 percent. In year-over-year numbers, the market was up 11.5 percent from the same period in 2011. The CREA speculates that tighter mortgage rules implemented in March of last year caused the market to stall, contributing to the big difference.

So far this year, Canadians have bought and/or sold 157,804 homes, 49,480 of which were sold last month. On the whole, according to the CREA, the market is balanced. The sales-to-new listings ratio, which signifies market health, is currently roughly 55.9 percent. Ratios of between 40 and 60 percent are considered balanced. Continue reading »

Shifting wage and lifestyle trends have resulted in more women than men looking to buy their first home in the next two years.

The 19th Annual Royal Bank of Canada Homeownership Poll surveyed likely homebuyers across the country to discover attitudes toward buying a new home. Of those who are likely to buy a house in the next 24 months, 49 percent of female respondents would be first-time homebuyers, compared with 35 percent of men.

Man or woman, affordability is the most commonly cited reason for delaying homeownership – 47 percent of respondents of both sexes placed it at the top of their list. In other areas, however, women appear to be more cash-conscious than their testosterone-driven counterparts. Nearly one in four women also listed concerns over job security, too small a down payment or simply not being ready as reasons to delay buying a home, compared with roughly 15 percent of men. Continue reading »

Home prices across Canada continued to rise this month, prompting a fresh wave of concern over a possible housing bubble, according to a recent analysis in the Financial Post.

Statistics Canada recently released a report showing home prices in March went up 0.3 percent, marking the 12th consecutive month of increases, according to the Post. Coupled with a report from the Canadian Mortgage and Housing Corporation that showed new home starts up 14 percent in April, the news has some politicians warning – again – of a potentially detrimental housing bubble.

The two most notable doomsayers, Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty, have been clamoring for consumers to reign in borrowing to prevent a collapse. According to Carney, consumer debt in Canada poses the greatest domestic threat to the economy. Despite their dire rhetoric, neither man has used his position to implement measures that might slow the market. Continue reading »