Even though the government has reduced the maximum amortization for insured mortgages down to 25 years from 40 years, Canadians on average are paying their homes off in 11.7 years! So why all the regulations and driving down affordability when no one is actually taking 40 years to pay off their property??
Well, I think there is likely some common ground here that we can agree on. A shorter amortization means building equity quicker so any drops in the market do not leave new home owners under water. So where could we meet in the middle? How about a 30 year amortization for first time buyers to make it easier to get into the market?? There are plenty of ways to accomplish what the feds want to accomplish without making it so difficult for those first time buyers who have really been shut out since the most recent round of mortgage rule changes.
We see the reason for trying to avoid a housing bubble, but all these rules are hurting more than just first time buyers. New home construction is way off, costing thousands of jobs to an economy that can’t afford it. So lets take our foot off the pedal but no need to slam on the brakes; mortgage rules need to be eased up!
Finance Minister Flaherty stated today in France, that the new mortgage rules the governement put in place over the past couple of years are having the desired effect. The market has slowed, condo sales have cooled down in the major markets and he doesn’t see the government needing to intervene any more based on how the soft landing is unfolding. I guess this is good news, less government intervention is likely in order; hopefully the spring market starts to pick up based on this news!
So how hot or cold is the real estate market these days? Prices are up over 2% over last year, sales are way down (15%) over last year, and we are still hearing of bidding wars in some markets.
A story today in the Financial Post, talks about bidding wars that are still occurring in the market even though it clearly is showing signs of softening. Is this a poor strategy for home buyers who should be more conservative or patient when we could be seeing price drops in the near future? Are prices going to come down enough to matter? Does the national average coming down, have more to do with the ‘Vancouver effect’, with most markets avoiding any price drops?
All important questions and what most home buyers should be thinking about before making that plunge. If you figure out the answer by the way, please let us know!
Thank You!!! No tip toeing around the issue, just saying what most bankers are thinking, good for Scotiabank… the article is here.
Conservative cabinet minister Maxime Bernier states that Flarety may have overstepped by intervening in the mortgage market, trying to deter banks from a rate sale. This mirrors what we were saying a couple weeks ago, the market should be dictating rates. By leaving rates higher, the banks are simply padding profits and the client is paying more than they should be based on spreads in the bond market.
In this latest example of intervention, Manulife Financial was convinced to raise their 5 year rate from 2.89% to 3.09% after a discussion with the Department of Finance. My thoughts, the government has slowed the market down enough, now get out of the way and let the market work, whatever that might be.
Scotiabank is the latest bank to come out with a report saying Canada will not see a US style housing crash. Sales are dropping, and prices will likely come down (approximately 5% over the next couple of years), but there will be no drastic drops. Although a sluggish economy is not great news, it is better news than the alternative which we saw play out south of the border.
Speaking of south of the border, a new report shows that new home building permits hit a 5 year high last month, as that economic sector is finally showing signs of life. The US economy on the whole is starting to improve and will definitely heading in the opposite direction to our own over the next couple of years.
Home sales were down significantly in February (vs Feb 2012), down 16% year over year. These numbers were not simply due to one or two large markets either, 80% of the markets saw a decrease in the sales numbers. Having said that however, the prices were only down 1% over last year, and most of that was due to the ‘Vancouver effect’; take this out and prices were actually up over 1%. The prices continue to defy odds and those waiting to buy until the prices come down continue to be disappointed.
The mortgage rule changes in the fall continue to slow the market down however, making it tougher for buyers to get into the market and tougher for sellers to find buyers for their home. But as mentioned above, it has not had the desired effect of bringing prices down, putting home ownership out of reach for many first time buyers.
Canada adds 50,000 jobs last month
In what was expected to be a sluggish gain in employment numbers, February blew away expectations by adding 50,700 jobs last month! This one month has economists thinking this could be the turning point on the economy which has been barely showing a pulse for 6 or 7 months now. The expectations for February was a net gain of 8,000 jobs.
The gain in jobs came mostly from Ontario and BC, and came primary from the service industry. The jobs were largely full time as well, which is a great sign that this was not simply a blip.
Flaherty came out today to tell the banks not to ‘race to the bottom’ with mortgage rates. Another clear sign the government is trying to keep the banks from getting into a rate war. Again, won’t go into another comment here but its an interesting situation that should be watched.
BMO has dropped their 5 year fixed rate to 2.99%, sparking talk of a rate war amongst the banks… usually good news for clients who are in the market for a new mortgage, however that rate war may not happen. Apparently behind the scenes, Ottawa is talking to the banks to discourage any competition amongst the banks to try to keep the housing market cool.
This is an interesting situation, as you wouldn’t expect the government to intervene in the market in such a manner. Obviously we realize what they are trying to do but is this manipulation of the market going to cause unintended consequences. Or are consumers overpaying for interest rates at a time when the market could be heading down in some markets? Rates are obviously very low, but should the government be getting involved in the market in such a blatant way? The manipulation of interest rates over the past decade could be fingered as one of the primary culprits of the run up of the housing market in the first place… not sure what the answer is, but it makes me very nervous to hear of governments getting involved in such a manner.