On April 18, Canada’s national banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), released its second Annual Risk Outlook (ARO), outlining what it believes are the most significant headwinds facing the Canadian financial system – and what the regulator plans on doing about it.

According to the report, the severe downturn in real estate prices and demand following their significant rise during the pandemic was the most pressing issue. OSFI acknowledges that the housing market changed significantly over the past year, and house prices fell substantially in 2022. The regulator is preparing for the possibility that the housing market will experience continued weakness throughout 2023.

The report also highlights how the Bank of Canada’s rate hiking cycle has impacted borrowers’ ability to pay down mortgage debt, with the central bank increasing its benchmark cost of borrowing eight times between March 2022 and January 2023, bringing its Overnight Lending Rate from a pandemic low of 0.25% to 4.5% today.

Mortgage holders may be unable to afford continued increases in monthly payments or may experience a significant payment shock at the time of their mortgage renewal, leading to higher default probabilities. Given the considerable impact of real estate-secured lending (RESL) activities in the Canadian financial system, a housing market downturn remains a critical risk.

OSFI also highlights the dangers posed by more borrowers hitting their trigger rates; according to a National Bank study, eight in ten variable fixed-payment borrowers who took their mortgages out between 2020-2022 are impacted. Lenders have addressed this by extending the amortization period for affected borrowers, but OSFI says this is just a temporary solution.

Borrowers and lenders alike will need to pay the price in due course, as OSFI points out. The growth in highly leveraged borrowers increases the risk of weaker credit performance, potentially leading to more borrower defaults, a disorderly market reaction, and broader economic uncertainty and volatility.

These recent comments strengthen expectations that stricter mortgage rules could be in the cards before the year ends. Back in January, OSFI announced it was considering making tweaks to its Guideline B-20, which outlines borrowing and risk requirements for banks underwriting residential mortgages and qualification rules for borrowers, including the mortgage stress test.

OSFI may increase borrowers’ debt servicing ratio requirements, making it more challenging for those with larger debt loads to qualify for a mortgage. It is also considering limiting how many of these higher-leveraged borrowers banks can have in their portfolios, potentially leading to fewer borrowers making the cut at A-lenders and turning to the B-side and alternative mortgage market.

Finally, OSFI may change the threshold criteria for the mortgage stress test. Currently, borrowers must prove they can carry their mortgage at a rate of 5.25%, or 2% above the one they’ll receive from their lender, whichever is higher. However, following last year’s rapid rate increases, the 5.25% threshold has become obsolete, with all current market rates above 3.25%.

OSFI wrapped up consultations on these potential changes late last week and will release a report on its recommendations. Borrowers should keep an eye out for changes in the months to come.

Home prices continued to decline across the country in July, according to Canadian Real Estate Association data released Wednesday.

The Ottawa-based group said the average price of a home sold last month was $353,147, a decline of 2% from a year earlier. The year-over-year decline in June was 0.8%.

“Prices are off their recent peaks in Greater Vancouver and Greater Toronto, but remain above year-ago levels in most markets,” the group said in a release.

Activity was up from the previous month in Kingston, Ont., Chilliwack, B.C., and Calgary, offset by fewer sales in Toronto, Newfoundland and Labrador, and Edmonton. Actual sales across the country were up 3.3% overall from a year ago.

Much of the decline in the national average can be blamed on Vancouver’s volatile market.

The city’s average sale price dropped more than 12% to $667,462 from $761,763 last year.

A senior economist at Royal Bank of Canada said the city’s lack of affordable homes is pulling down the market.

“We still believe that Vancouver is probably the most stressed market right now because of extremely poor affordability,” said RBC economist Robert Hogue.

“Plot the resale figures over the last year or so and you see a fairly significant decline in resales, so I think that this does the fit the definition of correction,” he said.

But a B.C. real estate economist said speculation of a market correction in Vancouver is unwarrwanted, as the economy continues to heal.

“Typically to see a price correction you need to see a macroeconomic shock — recession, very high unemployment, for example — or you need to see interest rates go up very dramatically in a short period of time. Both of those we don’t see on the horizon,” said Cameron Muir, the British Columbia Real Estate Association’s chief economist.

He said one-third of the market is first-time buyers, of which the market has no shortage.

“As long as we have first-time buyers that can get into the market to buy the homes from the people who are moving up, moving over, moving down, then the market should remain healthy,” Mr. Muir said.

Meanwhile, Toronto experienced a cooling, with prices increasing at a slower rate of 3.9% year over year, which BMO economist Douglas Porter called a “just-right” pace in a note Wednesday.

Mr. Hogue said the market across Canada is moderating and low resale numbers in the past three months were a result of compensation for a strong winter market and do not necessarily spell an impending pronounced correction.

“We believe that much of this easing was payback for a stronger-than-expected start to the year when warmer than usual weather this past winter and mortgage rate promotions by financial institutions provided a temporary boost to activity,” he said.

The Canadian Real Estate Association said tighter mortgage and lending regulations seemed to have cooled Canada’s national housing market, even in the bigger markets.

“Recent changes to mortgage regulations were widely expected to temper sales and prices in Greater Toronto and Greater Vancouver, and the data released today confirms that,” said Wayne Moen, president of the association, in a statement.

Finance Minister Jim Flaherty said Wednesday it may be too early to determine the extent of the impact of mortgage insurance reform, but that market moderation is a good thing.

“We want to avoid, obviously, the kind of thing that happened in the U.S. market, the Irish market and other markets in the Western economies with respect to their housing. So we want to have moderation,” he told The Canadian Press

http://business.financialpost.com/2012/08/15/canadian-home-prices-falling-steadily/

Hello everyone

For the 4^th time in 4 years there are more changes today in the mortgage industry.

The federal government has been warning Canadians that the household debt is getting out of control and it hit a record high of 152% of household income last year. 

Due to this the following changes have been made.

The maximum amortization for insured mortgages is now 25 years, brought down from 30 years.

The maximum loan to value for refinances is now 80%, brought down from 85%.

There are no changes to the minimum down payment needed to purchase a home, that is still 5%.

I know some of you are looking to purchase a home right now. This will make a significant change in your purchase price that you are approved for.

I have not come across the date the changes will take place, but reducing the amortization from 30 year to 25 years is going to reduce the amount you are qualified for.

Please call me or email me when you get a chance and we can go over your pre-approval.

If you know anyone that is trying to get into the market please let them know I am available for any questions they may have.

This may be a bit of a shocker but I am sure it will help our economy in the long run by reducing the debt we are used to carrying.

Lately the insurers have not been following their guidelines to the letter. They are making their decisions based more on the whole deal, rather than the debt service ratios and it is making it more difficult to give pre-approvals.

The lenders are approving the applications but the insurers are declining because they “feel” there is too much risk.

Below is an article about self employed individuals but there are similar instances for anyone who does not have a guaranteed salary or income.

While lenders are showing renewed willingness to loosen their purse strings for the army of self-employed borrowers, default insurers are making it tougher to get those deals done, a very frustrated principal broker told MortgageBrokerNews.ca.

“The minute I start to get questions from CMHC or Genworth about a non-income qualifying mortgage application, I know that it’s going to be rejected,” said Vittorio Oliverio with Centum Professional Mortgage Group. “We have a lot of lenders satisfied with the borrower’s downpayment and ability to pay, but what we are finding is that the insurers are the ones that are rejecting those applications. They have guidelines and they should stick with them.”

The concerns mirror those of other brokers from across the country who are now seeing the pendulum swing back from the dark days of 2007/8 when broker channel lenders had all but closed their doors to non-income qualifying mortgages. But while banks and mono-lines are increasingly willing to fund those equity deals at prime rates, they are still demanding default insurer backing.

That’s where brokers are hitting a snag, said Oliverio, who works the entrepreneurial-rich Alberta market. The Canadian Federation of Independent Business, in fact, identified his Lethbridge community as one of the country’s Top 10 “most entrepreneurial cities.” Seven other Alberta centres also made the cut.

Oliverio and other brokers across the country see the business-for-self market as a key growth area for an industry looking to grow originations in a slowing market. The statistics back them up with more than 22 per cent of Canadians now self-employed.

Many of those clients fit within CMHC guidelines for equity mortgages of 75 per cent loan to value. Winning that insurance is the difference between accessing today’s prime rates as opposed to those in the B market. But insurers have now retreated to more conservative standards, outside of their own guidelines, said Oliverio.

“They don’t appear to be allowing gifted down payments and they scrutinize the business’s cash flow and question income even though sales support that income,” he told MortgageBrokerNews.ca, suggesting the hyper-scrutiny keeps clients from winning mortgage amounts appropriate to their income and down payment.

The increased difficulty in getting insurer approval appears to contradict the position of lenders.

“It used to be that 80 per cent of the deals were rejected by the Schedule A banks,” Bob Woods, of Assured Mortgages, told MortgageBrokerNews.ca. “But the banks are beginning to adopt a common sense approach rather than being reactionary as they were even a year ago. They are back in the business of dealing with self-employed.”

Some more positive news regarding the upcoming months. Victoria’s real estate market is flooded with listings and 5 year Fixed mortgage rates are extremely low, with the Variable rate mortgages at a low risk choice as well.

By Christopher S. Rugaber,Paul Wiseman, The Associated Press

WASHINGTON – Farewell and good riddance to the first half of 2011 — six months that are ending as sour for the economy as they began.

Most analysts say economic growth will perk up in the second half of the year. The reason is that the main causes of the slowdown — high oil prices and manufacturing delays because of the disaster in Japan — have started to fade.

“Some of the headwinds that caused us to slow are turning into tail winds,” said Mark Zandi, chief economist at Moody’s Analytics.

For an economy barely inching ahead two years after the Great Recession ended, the first half of 2011 can’t end soon enough. Severe storms and rising gasoline prices held growth in January, February and March to a glacial annual rate of 1.9 per cent.

The current quarter isn’t shaping up much better. The average growth forecast of 38 top economists surveyed by The Associated Press is 2.3 per cent.

The economy has to grow 3 per cent a year just to hold the unemployment rate steady and keep up with population growth. And it has to average about 5 per cent growth for a year to lower the unemployment rate by a full percentage point. It is 9.1 per cent today.

As welcome as the stronger growth envisioned in the second half is, the improvement should be modest. For the final six months of the year, the AP economists forecast a growth rate of 3.2 per cent.

So far this year, high gas and food prices have discouraged people from spending much on other things — from furniture and appliances to dinners out and vacations. That spending fuels economic growth.

And some U.S. auto factories had to suspend or trim production after the March earthquake in Japan interrupted supplies of parts and electronics. American dealerships have had fewer cars to sell.

The latest dose of glum news: The government reported Monday that consumer spending was about the same in May as in April, the first time in a year that spending hasn’t increased from the previous month.

The report confirmed the toll that high gas prices, Japan-related disruptions and high unemployment have taken on personal spending in the second quarter.

“Here’s to a better third,” says Jennifer Lee, senior economist at BMO Capital Markets.

Relief is in sight, economists say. Oil prices have been falling since Memorial Day. The drop has lowered the price of regular unleaded gasoline by 23 cents in the past month, to a national average of $3.57 a gallon, according to AAA.

The timing of the drop in gas prices is especially fortunate because they usually rise during summer driving season, says Robert DiClemente, chief U.S. economist at Citigroup .

And the kinks in the global manufacturing chain are starting to be smoothed out as the Japanese factories that make cars and electronics resume production.

Diane Swonk, chief economist at Mesirow Financial, says auto sales should improve “quite substantially” later this year because the lost production from the earthquake is coming back faster than had been expected.

One sign of that rebound came when the Federal Reserve Bank of Chicago reported Monday that manufacturing in the Midwest rebounded in May after falling sharply in April.

And last week, the government said orders for machinery, computers, cars and other durable goods rose slightly in May after dropping in April. Economists attributed the turnaround, in part, to Japanese factories that started to rev up.

The U.S. economy is also expected to get a slight second-half boost from reconstruction in flood-ravaged sections of the South and Midwest. Construction workers will be employed rebuilding homes and businesses. People will replace destroyed cars and other possessions. Analysts predict the economic losses from the floods in the April-June quarter will be reversed in the July-September quarter.

The economists surveyed by AP predict unemployment will fall to 8.7 per cent at year’s end. It is not exactly the start of a boom: The economy is still carrying too much baggage from the financial crisis — damaged banks, depressed home prices, debt-burdened consumers — to achieve much liftoff.

Though some of the economy’s weakness in the first half is temporary, “it is hard to see much on the horizon to cheer about,” Swonk says.

____

AP Economics Writer Martin Crutsinger contributed to this report.

http://ca.finance.yahoo.com/news/Why-economists-see-modestly-capress-1496951129.html?x=0

I heard today, on 2 separate occations, people thinking that they need more than 5% of the purchase price as a down payment on a house or condo.

With the changes CMHC made this year and in 2010, I guess some people are confused.

The changes were made to the amortization, or the length of the mortgage the payments are based on, and the refinancing rules.

There has been no change to the minimum amount you need to put down.

5% down is the minimum to get best rates. But with the low rates were are experiencing now, you can even get away with 0% down. There are certain conditions that apply to that type of mortgage though so please ask me if you think that might suite you.

If you ever hear of anyone thinking they need 10% or even 15% down on a purchase, please have them call me so I can explain the actual numbers with them.

5 year fixed mortgage rates are continuing to drop and there is no expected increases coming.

Have a great weekend and please pass the word on about the minimum down needed!!

The fixed rates may be coming down a little more, RBC finally lowered their 5 year fixed rate by 10 basis points. Their mortgage rates are still much higher than other non branch lenders though.

The variable rates are still constant at Prime minus .75% or better.

An article yesterday stated that sales numbers have dropped but prices are still increasing, mostly in due to Vancouver’s values increasing. The strong market on the mainland usually keeps Victoria’s strong as well.

Please feel free to email or call if you have any questions about financing or the real estate market.

In the last week the big banks have increased their 5 year fixed mortgage rates by 30 basis points. The bond rates have increased by only 10 basis points.

It looks like the banks are trying to increase their earnings by charging their clients more when it doesn’t look like they need to. How much more do they need to make?

The credit unions have reduced their rates.

Now there is a 74 basis point difference in the 5 year fixed rate between the big banks and our credit unions.

For a $300,000 mortgage amortized over 30 years, there is a $11,452 difference in interest over 5 years. That is a large amount to be losing out on by using a bank.

This is creating a very good opportunity for those high interest mortgage holders right now.

The penalties for refinancing into a lower rate mortgage will be calculated on the increased rates, reducing them ,but your new rate will be much lower increasing the potential savings.

If the penalties were scaring you off before, this is a good time to take another look.

Please contact me if you have any questions or comments.

The Bank of Canada held its lending rate this morning as expected. The state of the rest of the world’s economy being the most significant reason for not tightening up the monetary policy. The quote below leaves the decision unknown for April’s meeting. It was expected that they would increase their lending rate in April but now it looks to be uncertain.

“Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered. “

The remaining article is available at

http://www.bankofcanada.ca/en/fixed-dates/2011/rate_010311.html