Canadian Home Sales Hit An All-Time Record High in January

Economic Insights Raymond Walia 19 Feb

Housing Continued to Surge in January

Today the Canadian Real Estate Association (CREA) released statistics showing national home sales hit another all-time high in January 2021. Canadian home sales increased 2.0% month-on-month (m-o-m) building on December’s 7.0% gain. On a year-over-year (y-o-y) basis, existing home sales surged 35.2%. As the chart below shows, January activity blew out all previous records for the month.

The seasonally adjusted activity was running at an annualized pace of 736,452 units in January, significantly above CREA’s current 2021 forecast for 583,635 home sales this year. Sales will be hard-pressed to maintain current activity levels in the busier months to come, absent a surge of much-needed new supply; However, that could materialize as current COVID-19 restrictions are increasingly eased and the weather starts to improve.

A mixed bag of gains led to the month-over-month increase in national sales activity from December to January, including Edmonton, the Greater Toronto Area (GTA), and Chilliwack B.C., Calgary, Montreal and Winnipeg. There was more of a pattern to the declines in January. Many of those were in Ontario markets, following predictions that sales in that part of the country might dip to start the year with so little inventory currently available and many of this year’s sellers likely to remain on the sidelines until spring.

Actual (not seasonally adjusted) sales activity posted a 35.2% y-o-y gain in January. In line with activity since last summer, it was a new record for January by a considerable margin. For the seventh straight month, sales activity was up in almost all Canadian housing markets compared to the same month the previous year. Among the 11 markets that posted year-over-year sales declines, nine were in Ontario, where supply is extremely limited at the moment.

CREA Chair Costa Poulopoulos said, “The two big challenges facing housing markets this year are the same ones we were facing last year – COVID and a lack of supply. It’s looking like our collective efforts to bring those COVID cases down over the last month and a half are working. With luck, some potential sellers who balked at wading into the market last year will feel more comfortable listing this year.”

New Listings

The dearth of new listings continues to be the biggest problem in the housing market. As we move into the spring market and continue to see fewer COVID cases, the likelihood is that new supply will emerge. But for now, the number of newly listed homes plunged 13.3% in January, led by double-digit declines in the GTA, Hamilton-Burlington, London and St. Thomas, Ottawa, Montreal, Quebec and Halifax Dartmouth.

With sales edging higher and new supply falling considerably in January, the national sales-to-new listings ratio tightened to 90.7% – the highest level on record for the measure by a significant margin. The previous monthly record was 81.5%, set 19 years ago. The long-term average for the national sales-to-new listings ratio is 54.3%.

Based on a comparison of sales-to-new listings ratio with long-term averages, only about 20% of all local markets were in balanced market territory in January, measured as being within one standard deviation of their long-term average. The other 80% were above long-term norms, in many cases well above. This was a record for the number of markets in seller’s market territory.

There were only 1.9 months of inventory on a national basis at the end of January 2021 – the lowest reading on record for this measure. At the local market level, some 35 Ontario markets were under one month of inventory at the end of January.

Low available supply is the reason property values will continue to go up. Strong demand pre-pandemic and the historic market rally since summer have cleaned up inventories in many parts of the country. Relative to the 10-year average, active listings had plummeted between 50% and 61% in Ontario, Quebec and most of Atlantic Canada, and 29% in BC by the late stages of 2020. And that’s despite a surge in downtown condo listings since spring in Canada’s largest cities. With so few options to choose from (outside downtown condos), buyers will continue to compete fiercely. Buyers in the Prairie Provinces, and Newfoundland and Labrador, however, will feel less pressure to outbid each other given supply isn’t quite as scarce in these markets.

Home Prices

Viewed from another angle, sellers enter 2021 holding a powerful hand when setting prices in most of Canada. We see this continuing during most of 2021. We expect provincial sales-to-new listings ratios—a reliable gauge of price pressure—to generally stay above the threshold (0.60) where sellers have historically yielded more pricing power. In several cases (including BC, Ontario and Quebec), ratios are well above the threshold, providing plenty of buffer against demand-supply conditions flipping in favour of buyers.

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose by 1.9% m-o-m in January 2021. Of the 40 markets now tracked by the index, prices were up on a m-o-m basis in 36.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 13.5% on a y-o-y basis in January – the biggest gain since June 2017.

The largest y-o-y gains – above 30% – were recorded in the Lakelands region of Ontario cottage country, Northumberland Hills, Quinte & District, Tillsonburg District and Woodstock-Ingersoll.

Y-o-y price increases in the 25-30% range were seen in Barrie, Niagara, Grey-Bruce Owen Sound, Huron Perth, Kawartha Lakes, London & St. Thomas, North Bay, Simcoe & District and Southern Georgian Bay.

Y-o-y price gains followed this in the range of 20-25% in Hamilton, Guelph, Oakville-Milton, Bancroft and Area, Brantford, Cambridge, Kitchener-Waterloo, Peterborough and the Kawarthas, Ottawa and Greater Moncton.

Prices were up 16.6% compared to last January in Montreal. Meanwhile, y-o-y price gains were in the 10-15% range on Vancouver Island, Chilliwack, the Okanagan Valley, Winnipeg, the GTA and Mississauga. Prices rose in the 5-10% range in Victoria, Greater Vancouver, Regina and Saskatoon. Home prices were up 2% and 2.2% in Calgary and Edmonton, respectively.

Bottom Line

The rollercoaster that was 2020 left Canada’s housing market more or less where it started the year: full of bidding wars, escalating prices and exasperated buyers unable to find a home they can afford. The pandemic changed some dynamics—it drove many buyers to the suburbs, exurbs and beyond, ground immigration to a virtual halt, triggered a downturn in big cities’ rental markets and caused households to build up their savings—but it didn’t dial down the market’s heat.

The marked shift in housing strength from urban centres–Toronto, Vancouver, Montreal–to perimeter cities is ongoing. For example, Toronto’s prices are up ‘only’ 11.9% y-o-y, but Barrie (+27%) and London (26%) have far outpaced these gains.

Condo price growth has slowed to just 3.1% y-o-y, or a record 14.3 percentage points below the price gains in single-detached homes. That’s by far the widest gap in 20 years and reflects the hunt for space and social distancing.

Housing starts (reported yesterday by CMHC) surged to 282,428 annualized units in January, the second-highest monthly posting since 1990. This figure could be distorted upward by the unseasonably mild January weather in much of the country. But the new high in starts is in line with record sales and solid building permits.

For policymakers, it doesn’t appear that there’s much interest in leaning against a sector that is helping to prop up the economy, especially with years of tightening mortgage rules already in place.

There appears to be little on the horizon to stop sales or prices from reaching new heights in 2021. Yet, cooling signs will emerge as the year progresses, which will come into fuller view next year. The foremost restraining factors will be a rise in new listings, waning pandemic-induced market churn, a modest creep-up in interest rates and an erosion of affordability. Call it a 2022 soft landing.

Published by Sherry Cooper.

Why all the talk around rising interest rates in Canada?

Economic Insights Raymond Walia 19 Feb

Over the past few days, Canadian media has been crackling with speculation over the future of interest rates in Canada. With the Bank of Canada holding its overnight interest rate at the effective lower bound of 0.25% as recently as January 20, the sudden explosion of rate-rise paranoia comes as somewhat of a surprise.

Just yesterday, the Huffington Post shared a story detailing how the historic amount of money saved by Canadians during the COVID-19 crisis could lead to a tidal wave of spending that sends the Canadian economy soaring past the 2% inflation target established by the BoC as a benchmark for increasing rates.

Quoted in the story was Scotiabank’s Derek Holt, who warned that the slack currently being seen in Canada’s economy could disappear sooner than most experts are expecting.

“The prudent thing to advise heavily indebted Canadians is to plan their finances around rate hikes commencing considerably sooner than the Bank of Canada has guided even up to last week’s announcements,” Holt wrote last Friday.

The Financial Post ran with Holt’s take on February 01, bolstering it with comments from experts at RBC and CIBC who see Canada’s recent economic performance – output up by approximately 8% annualized in the fourth quarter, 0.7% GDP growth in November; both results almost double what economists were expecting – as a sign of brighter days ahead for the economy.

“If the starting point is better, then an earlier elimination of slack is a natural conclusion,” RBC’s Simon Deeley told the FP.

Comments from a report from CIBC’s Avery Sheffield said that if the Canadian economy experiences “enough demand” in 2021, it “might be closing in on full employment, with additional government spending being offset by an earlier need to hike interest rates to contain inflation.”

Dissenting voices

With COVID-19 still a reliable source of economic tumult, projecting an increase in interest rates based on one or two pieces of positive data so early into 2021 feels like somewhat of a stretch. Dominion Lending Centre’s chief economist Dr. Sherry Cooper says some economists may want to take into consideration one of the glaring weaknesses in Canada’s battle against COVID-19 before getting too ahead of themselves.

“One of the biggest reasons [the Bank of Canada] can’t raise rates this year is the vaccine rollout debacle,” Cooper said. “There is no way everyone who wants a vaccine will get one by September, as the Prime Minister has promised.”

RateSpy founder Robert McLister shares Cooper’s scepticism regarding a rate hike.

“BoC rate hikes in 2021 are as likely as snow in July,” McLister said.

Both McLister and Cooper told MBN that for the Bank of Canada to justify rate increases, its 2% inflation target would not only need to be reached, but sustained.

“If the Bank’s messaging is to be believed, and usually it should be, it wants to see core inflation materially exceed 2% for multiple months before it pulls the trigger on a hike,” McLister said.

Recent homeowners at risk?

2020 was a historic year for real estate sales in Canada, one in which low interest rates played no small part. According to the Canadian Real Estate Association, over 714,000 homes were sold last year, providing critical breathing room for the country’s asphyxiating economy.

With real estate being such an important component of Canada’s fiscal wellbeing, and thousands of Canadians relying on adjustable-rate mortgages to fund their home purchases, could there be pressure on the Bank of Canada to leave rates where they are as a means of both maintaining the housing market’s momentum and avoiding a predicament in which countless homeowners are unable to afford higher mortgage payments?

Cooper and McLister say ‘no’.

“The Bank’s mandate is inflation control, not borrower protection,” McLister said. “People are stress tested at ridiculously high rates these days – 4.79% vs. five-year fixed rates below 1.75%. A one-point run-up in rates would have virtually no effect on defaults for over 99 out of 100 prime borrowers.”

And that’s only if rates increase, a move the Bank of Canada has yet to indicate any appetite for. The BoC, Cooper said, has made it “very clear” that it will “not raise rates before 2023.”

Published by Clayton Jarvis, Mortgagebrokernews.ca

Canadian Employment Falls to Lowest Level Since August

Economic Insights Raymond Walia 19 Feb

Extended Lockdowns Batter Jobs Market

This morning, Statistics Canada released the January 2021 Labour Force Survey showing the negative economic impact of extended lockdowns in Ontario and Quebec. The closing of all in-person dining, nonessential retail, recreational facilities and personal care services in these provinces and Alberta and Manitoba took its toll on the labour markets.

Employment fell by 212,800 (-1.2%) in January, much weaker than generally expected. Losses were entirely in part-time work–full-time jobs actually rose 12,600–and were concentrated in the Quebec and Ontario retail trade sectors. As a result, hours worked somehow managed to rise 0.9% in the month.

Friday’s report wipes out months of gains, leaving employment about 4.5% shy of February 2020 pre-COVID levels.

The decline in January followed a revised 52,700 drop (-0.3%) in December and brought employment to its lowest level since August 2020.

Once again, job losses were heavily concentrated in retail and wholesale trade and hotels and restaurants. It is worth noting that 8 of the 16 industrial sectors saw job gains last month.

The unemployment rate rose 0.6 percentage points to 9.4%, the highest rate since August. That unemployment rate is now 3.7 ppts above the pre-COVID level, while the U.S. rate of 6.3% is 2.8 ppts higher over that period. This second consecutive monthly increase brought the unemployment rate to its highest level since August 2020. The number of long-term unemployed (people who have been looking for work or have been on temporary layoff for 27 weeks or more) remained at a record high (512,000)—a reminder that as unemployment has increased in recent months, many people affected by the initial COVID-19 economic shutdown have yet to return to work.

Still, Canada’s labour market is faring better now than it did during the first wave of restrictions in March and April when employment fell by 3 million.

By April 2020–one month into the pandemic–5.5 million workers had been directly affected by the initial widespread COVID-19 economic shutdown, which resulted in a drop in employment of 3.0 million and an increase in COVID-related absences from work of 2.5 million. In January, the equivalent number of affected workers was 1.4 million, including a decrease in employment of 858,000 and a COVID-related increase in absences of 529,000.

Once again, declines in employment occurred mostly among youth and women in the core working age of 25 to 54. These groups also recorded large decreases in part-time employment during the initial downturn in March and April 2020, reflecting that they are more likely to work part-time in industries directly affected by COVID-19 public health measures, including retail trade, and accommodation and food services.

Some industries with a high proportion of full-time employment—including professional, scientific, and technical services; finance, insurance, real estate, rental and leasing—have recovered to pre-COVID employment levels in recent months and were unchanged in January.

Among Canadians who worked at least half their usual hours, the number working from home increased by nearly 700,000 to 5.4 million in January, surpassing the previous high of 5.1 million in April during the first wave of the COVID-19 pandemic.

Average hourly wages bounced up again to 6.2% y/y, but that strength is due to the loss of lower-paying jobs in the retail and restaurant industries.

The employment losses were entirely in the two provinces that had the toughest restrictions—Ontario and Quebec—as jobs rose in 7 of the 10 provinces. The table below shows the jobless rate fell in Alberta, New Brunswick, Nova Scotia, Manitoba, PEI and Saskatchewan.

Bottom Line 

With the decline in COVID cases in recent weeks, there is some hope that restrictions will be eased. Quebec has already announced it will start to loosen some restrictions on gyms, restaurants and bars in the coming days, and Ontario is on pace to reopen more schools. However, public health officials warn that new variants of the virus remain a risk and urge for continued lockdowns.

There is no question that the bright light at the end of the very dark pandemic tunnel is a widely distributed vaccine. On that score, Canada is faring badly. The Biden administration is working hard to step-up vaccine distribution, but Canada apparently placed its vaccine orders well after the US and UK. Production issues have harshly slowed Canada’s supply of vaccines. While the US and UK have already broadened distribution to all people aged 65 and over, Canada hasn’t even finished vaccinating health care workers and long-term care residents. Reports suggest that significantly more supply will not be forthcoming until April.

The chart below describes the Canadian vaccine rollout. We now rank 34th in the world in terms of total vaccination doses administered per 100 people.

Published by Sherry Cooper.

Misconceptions About reverse Mortgages

CHIP Reverse Mortgages Raymond Walia 19 Feb

With a Reverse Mortgage, You No Longer Own Your Home
FALSE. You always maintain title, ownership and control of your home. The reverse mortgage lender simply has a first mortgage on the title.

You Will Owe More Than the Value of Your Home
FALSE.
 Most reverse mortgages come with a “No Negative Equity Guarantee” the notes as long as the homeowner has met the required obligations, the amount you will have to pay on the due date will not exceed the fair market value of your home.

Reverse Mortgages are Expensive
FALSE. Much like a conventional mortgage, an appraisal of your property and independent legal advice is required for a reverse mortgage and will be similar to the costs you would incur on a regular payment mortgage. However, beyond this the only additional fees are a one-off closing and administration fee. When compared to the cost of moving to another home, the reverse mortgage is a much more affordable option.

Reverse Mortgages Have Higher Interest Rates
DEPENDS. While interest rates are typically a bit higher than a traditional mortgage, the difference is not excessive. In addition, it is important to remember that monthly mortgage payments are not a viable option for most retired Canadians. In addition, there are many who struggle to even qualify for a traditional mortgage. For these reasons, many retired Canadians are choosing reverse mortgages over conventional solutions.

You Can’t Pass on Your Home
FALSE. Another myth is that your children won’t be able to inherit your home if you utilize a reverse mortgage. This is not the case as your heirs will always have the option of keeping the property by paying off your reverse mortgage after you pass away. Plus, if you have a “No Negative Equity Guarantee” in your reverse mortgage contract, then if the mortgage amount due is more than the gross proceeds from the sale of the property, the lender will cover the difference between the sale price and the loan amount. Therefore, you will never owe more than the fair market value of the home.

Published by DLC.

Benefits of a Reverse Mortgage

CHIP Reverse Mortgages Raymond Walia 19 Feb

The benefits of a reverse mortgage don’t just stop at the ability to cash in on your home’s equity! In fact, these benefits also include:

  • No monthly mortgage payments
  • No income or credit qualifications
  • Very low / little paperwork required
  • Title and ownership of property remain in homeowner’s name
  • Flexible options to break term early if needed
  • Penalty waived in the event of death or care home placement to preserve the estate

If you think a reverse mortgage might be the right option for you or your parents, contact a Dominion Lending Centres Mortgage Professional today to discuss your current situation and how this increasingly popular mortgage option can help.

Published by DLC.

Reasons To Consider a Reverse Mortgage

CHIP Reverse Mortgages Raymond Walia 19 Feb

Reverse mortgages are designed to allow you to access up to 55% of your home’s equity, thereby allowing you to convert your home equity into cash. This can be done as either a one-time lump sum payment, or you can choose to structure it to receive monthly payouts. The money received through a reverse mortgage can be used to pay off existing debts, gift money to family, expand qualify of life, add safety features to the home, or expand your investment portfolio.

You can also switch your switch your existing mortgage dollar-for-dollar to eliminate payments and increase cash flow.

Published by DLC.

What is a Reverse Mortgage?

CHIP Reverse Mortgages Raymond Walia 19 Feb

Reverse mortgages are designed for Canadians who are 55 and older. The goal is to allow these individuals to tap into the equity of their home to assist in comfortable financial living. However, the difference is that once a reverse mortgage is in place, borrowers are not required to make regular payments. This allows them a considerable inflow of cash, without having to pay off what they owe. The only time payment will be required is when you sell or move out of your home.

The payout of the mortgage at this time would consist of the original principal balance, plus the accrued interest since inception. Hence, it’s a reverse mortgage because you don’t make payments and the balance increases with the accrued interest, as opposed to reducing like a traditional mortgage. Fear not, the equity historically is still maintained or even grows as the appreciation value is generally higher than the interest accrual.

While the focus of a reverse mortgage is on older individuals, this is also a great option for individuals wanting to assist their elderly parents. Instead of selling and moving to a care home or assisted living, some individuals prefer to stay where they are familiar and instead opt for in-home care. A reverse mortgage is a terrific way to access the equity in the home, month by month, to pay for those care costs.

Published by DLC.

Overview

CHIP Reverse Mortgages Raymond Walia 19 Feb

Reverse mortgages are continuing to gain popularity for homeowners over 55 in Canada. One reason for the increased popularity of the reverse mortgage is simply necessity. For many Canadians who are looking to retire but currently facing high debt load and ongoing expenses, as well as reduced income, it can be a challenge. This is where the reverse mortgage can help!

Published by DLC.

Renewing Your Mortgage

Renew Raymond Walia 19 Feb

When it comes time to renew your mortgage, most lenders will send you a renewal letter when there is around 3 months remaining on your term. While nearly 60 percent of borrowers simply sign and send back their renewal without ever shopping around for a more favourable interest rate, this is actually the best time to check out your options.

Since your term is ending, this is a great time to shop the market or redo your mortgage WITHOUT PENALTY! If you have been wanting to switch your mortgage from fixed to variable-rate (or vice-versa), or want to move to a different lender or try for a lower rate, your DLC Mortgage Professional can help!

Do be advised, if you are considering switching lenders, you will need to inquire about any existing life insurance or other policies that you have, as this could be affected if you change lenders. You should also be aware that and NEW insurance could be more expensive as you are re-applying and your circumstances (age, health) will have changed since your initial mortgage term and insurance plan was signed.

A Dominion Lending Centres Mortgage Professional can help answer all your refinancing questions – and more – as well as shop the market to find you a better rate! With access to over 90 lenders, they are able to quickly compare mortgage rates and products and help you make the switch!

Published by DLC.

Refinancing Considerations

Refinancing Raymond Walia 19 Feb

As with everything, refinancing comes at a price! If you are experiencing a financial rough-patch or one of the previously mentioned situations and think that refinancing your mortgage could be the right solution, there are a few things to know.

The first and most important thing to understand about mortgage refinancing is that if you opt to refinance during your term, it is considered to be breaking your mortgage agreement. As with any contract, there are associated penalties for breaking them and it could end up being quite costly. If at all possible, it is always best to wait until the end of the mortgage term before any refinancing is conducted.

Beyond the penalties, there are a few additional things to know about mortgage refinancing such as:

  • It allows you to tap into 80 percent of the value of your home.
  • It requires re-qualification under the current rates and rules, which includes passing the “stress test” again
  • No default insurance is required, which could give you more lender options
  • There is typically an appraisal cost and legal fees for the new mortgage agreement

Talking to a Mortgage Professional about refinancing can provide you access to even greater rates and mortgage plans to best suit your needs and what you are trying to accomplish through your refinancing strategy. The best part? Their services won’t cost you a penny. Why wait? Contact a DLC Mortgage Professional in your area today.

Published by DLC.