Demystifying the Changes to Mortgage Rules

Just met with Francine Gomes, a mortgage specialist with BMO and she passed along the following article which she wrote about the new mortgage rules.

Demystifying the Changes to Mortgage Rules

After speaking with clients, it’s apparent that there are many misunderstandings that persist concerning the mortgage policy changes that have taken effect this year. A BMO Bank of Montreal poll conducted earlier this year by Pollara reflects this, with nearly half (49%) of Canadians indicating they are unfamiliar with the new measures being put in place.

I’ve had clients incorrectly believe that:

·         they now need to have a 20 per cent down payment to purchase a home

·          they are no longer able to refinance their current home

·         if they were in a mortgage with an amortization over 30 years their mortgage would need to be renegotiated to 25 years

All of these beliefs are false. There have, however, been a few changes in 2012 to mortgage lending policy that are currently in effect. They are:

·         the maximum amount that can be borrowed when refinancing a mortgage was reduced to 80 % from the previous 85 % value of a home

·         The maximum amortization from insured mortgages drops to 25 years from 30 years — giving borrowers less time to repay the debt in full.

·         The ban of mortgage insurance on properties over $1 million.

·         New Home Equity Revolving Loans are approved to a maximum of 65% of the value of the home.

So if you currently have a mortgage with an amortization longer than 30 years, you can rest soundly as the bank is not going to have you increase payments to renegotiate it to 25 years. You should be aware, though, that if you apply to refinance at a later date, your new application will be subject to these new mortgage rules. However, if your mortgage is coming up for renewal and you are not looking to increase your mortgage amount; you will also not be affected by this change in amortization period.

If you are purchasing a home as your primary residence, you can do so with as little as a 5% down payment, but you would be limited to a 25 year amortization. The minimum down payment to avoid mortgage insurance premiums is 20%, and in this scenario you can still choose a 30 year amortization.

However, the benefits of a shorter mortgage means you pay less in interest, saving thousands of dollars in interest costs over the life of your mortgage – meaning you can have a mortgage burning party sooner and allowing you to get a head start on other financial goals such as saving for retirement.

A shorter amortization period also allows homeowners to begin building home equity sooner. This equity can then be used to finance other important life events, such as post-secondary education for your children, a family vacation property or renovation and expansion of your current home.

For all you’re home financing questions and for advice about your particular scenario please do not hesitate to contact me, Francine Gomes, BMO Mobile Mortgage Specialist, locally serving the West Kootenays, at 1-877-680-9225. As a mobile mortgage specialist I’m able to meet you when and where it’s convenient for you. Mortgage expertise at your doorstep 24/7.

Francine Gomes
Mortgage Specialist
BMO Bank of Montreal
West Kootenays
Office: 250-365-8919

Fax: 250-365-8921

Cell: 250-513-0042 or 1-877-680-9225

francine.gomes@bmo.com

http://bmo.com/ms/francinegomes

 

Canadian Q4 Real GDP Growth

The Canadian economy weakened significantly in in the second half of 2012, posting growth of just 0.6 in both the third and fourth quarter respectively. For all of 2012, the Canadian economy expanded 1.8 per cent.

Although consumers ramped up spending in the second half of 2012, households continue to undergo significant de-leveraging following several years of low-interest debt accumulation. Excluding recessionary periods, household credit is currently growing at its slowest pace in nearly 30 years, which will likely translate into slower spending. Besides a likely slowdown in consumer spending, a much needed pivot from consumption to business investment driven growth looks doubtful. Anticipated investment for 2013 is set to rise just 1.7 per cent, the smallest increase since 2009.  Add-in a still struggling global economy and you have a Canadian economy that will likely struggle with below 2 per cent growth for much of 2013 before picking up in 2014.

Copyright BCREA - reprinted with permission

BC Commercial Leading Indicator Edges Lower in Fourth Quarter

The British Columbia Real Estate Association (BCREA) Commercial Leading Indicator (CLI) edged lower by 1.3 points in the fourth quarter of 2012, to an index level of 111.3. On a year-over-year basis, the CLI was up 0.8 per cent during the fourth quarter of 2012.

The decline in the CLI translates to a slight rolling over in the underlying index trend, signaling a potential slowing of activity for the first half of 2013.

"A modest slowing of commercial real estate activity is in general accord with 2013 being somewhat of a transition year for the economy,” said Brendon Ogmundson, BCREA Economist. “We anticipate that slower growth through the first half of 2013 will give way to a more robust economy in 2014 and therefore an increase in commercial market activity."

Copyright BCREA - reprinted with permission

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Two Housing Myths of 2013

Volatility is the spice of life, especially for economists. It keeps us on our toes. It keeps us questioning the assumptions, forecasts, and even the analysis we do. And it certainly leaves us scratching our heads from time to time. Two head scratchers that seem to permeate contemporary economic and housing market commentary are the great housing crash of 2013 and Vancouver’s notoriously hot condo market.

 

Home prices are not headed over the proverbial cliff despite repeated attempts by media outlets like Maclean’s magazine to sensationalize a slowdown in consumer demand. Housing market meltdowns are typically caused by household financial disaster at a large scale, caused by such things as a recession or rapidly rising interest rates. In other words, a large proportion of households can’t afford to buy or even keep their homes because of lost jobs or big jumps in monthly mortgage payments.

 

Those conditions simply don’t describe today’s economy. In fact, employment growth in the province was only eclipsed by Alberta, Saskatchewan and Newfoundland in 2012. And while job growth slowed over the last quarter, part-time jobs are continuing to decline in favour of full-time employment. Combine this with persistently low interest rates, indications of a more substantial recovery in the US, and strong trade diversification globally, and you get a relatively solid foundation to household finances.

 

Over the past four years, policy makers in Ottawa have deemed it necessary to restrain mortgage credit with the most impactful change coming from a shortening of amortizations on high-ratio mortgage from 40 to 25 years. While some tightening of lending standards was prudent in the wake of the US sub-prime fiasco, the rationale provided by the Federal Government has not always been air-tight, particularly when it comes to Vancouver. When explaining the need for tighter mortgage lending standards, it is common to hear the words “overheated” or “red-hot” when it comes to Toronto and Vancouver condo markets.

 

Since recovering from the global financial crisis, inflation adjusted condo prices in Vancouver have actually trended some 6 per cent lower since 2009. The same story holds for condo sales, which fell dramatically during the financial crisis, posted a strong recovery, and have fallen well below pre-recession levels since. To an impassioned observer, the Vancouver condo market appears to be entering the fourth year of a quintessential soft landing, where flat prices gradually lead to improved affordability as inflation adjusted prices decline or incomes grow relative to the price level. The Vancouver condo market has not been “hot” for quite some time. Perhaps it is time for federal policy makers to update their talking points.

 

by Cameron Muir, BCREA Chief Economist

 

Copyright BCREA – reprinted with permission

Canadian Retail Sales and Consumer Price Inflation

Canadian retail sales declined 2.1 per cent in December, following five consecutive monthly increases. The majority of the decline was sparked by a dip in motor vehicle sales. Excluding motor vehicles sales, retail sales were down 0.9 per cent in December. Canadian retail sales growth for all of 2012 was just 2.5 per cent, half the rate of growth in 2011.

Retail sales in British Columbia fell 0.9 per cent in December and were 0.2 per cent lower year-over-year. For all of 2012, retail sales grew just 2.2 per cent, the weakest sales growth since the 2009 recession in spite of strengthening fundamentals like full-time employment and wage growth.

Weak retail sales point to fairly weak economic growth in both Canada and BC at the end of 2012, which has meant very little upward pressure on inflation. Canadian CPI registered just 1 per cent in January matching the increase in the Bank of Canada's core inflation index. 

copyright BCREA - reprinted with permission

US Housing Starts

US housing starts declined in January from a nearly 5-year high in December, registering 890,000 units at a seasonally adjusted annual rate (SAAR).  Building permit data, a proxy for future housing starts, rose to a 925,000 unit annual rate implying that the dip in new home construction last month will be temporary.

The strong recovery in US home construction in 2012 helped boost BC wood product exports by 8 per cent last year and should continue to be an important driver of BC export growth this year.

Copyright BCREA - reprinted with permission

BCREA Housing Market Update (February 2013)

BC Real Estate Association (BCREA) Chief Economist Cameron Muir discusses the January 2013 statistics.

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BC Home Sales Remain Subdued but Stable

The British Columbia Real Estate Association (BCREA) reports that a total of 3,410 residential sales were recorded by the Multiple Listing Service® (MLS®) in BC during January, up 1.8 per cent from December on a seasonally adjusted (SA) basis, but down 13.6 per cent compared to January 2012.  Similarly, total sales volume increased 3.8 per cent SA, but declined 16 per cent from the same month last year. The average MLS® residential price in the province was $514,134, up 3.2 percent from December, however, down 2.7 per cent from a year ago.

"Despite a modest uptick in consumer demand last month, home sales have remained relatively stable at a noticeably lower level since last August,” said Cameron Muir, BCREA Chief Economist. “Continuing low mortgage interest rates combined with an easing back of home prices in some areas is expected to trend home sales higher during the spring and summer months."

“The ratio of home sales to new listings is indicative of a balanced market at 42 per cent,” added Muir. “However, there remains a backlog of existing home listings to either sell or be pulled off the market before supply and demand can be considered in check.”

Dramatic swings in average price statistics caused by a surge and subsequent pullback in luxury home sales appear to be near an end. The year-over-year change in average prices now more closely reflects the home price indices in Vancouver and the Fraser Valley.

Copyright BCREA - reprinted with permission

Canadian home sales edge higher in January

According to statistics released today by The Canadian Real Estate Association (CREA), national home sales activity edged up on a month-over-month basis in January 2013. National sales activity has held fairly steady after gearing down last August in the wake of tightened mortgage lending rules.

Highlights:

·         National home sales rose 1.3% from December to January.

·         Actual (not seasonally adjusted) activity came in 5.2% under levels in January 2012.

·         The number of newly listed homes rose 1.6% from December to January.

·         The Canadian housing market remains firmly in balanced territory.

·         National average sale price was up 2% year-over-year in January.

·         The MLS® HPI rose 3.1% in January, the smallest gain since April 2011.

The number of home sales processed through the MLS® Systems of real estate Boards and Associations and other cooperative listing systems in Canada edged up 1.3 per cent on a month-over-month basis in January 2013. This marks the fifth month in a row that national sales activity has shown little change from levels in the previous month.

Home sales picked up in about half of all local markets in January from the previous month, including some of Canada’s most active. Greater Toronto and Greater Vancouver posted monthly sales increases of 5.6 per cent and 4.7 per cent respectively, while sales in Edmonton climbed by nearly 10 per cent on the month. Activity gains there were partially offset by softer sales in Ottawa, the Fraser Valley, Montreal, Regina, London and St. Thomas, and Calgary.

“There is little new to report about national sales activity, which continues to hold fairly steady at the lower levels first reached when mortgage rules were tightened in mid-2012,” said CREA President Wayne Moen. “That said, things are becoming more interesting among local markets, with improving sales in Vancouver and Toronto likely to come as something of a surprise to some. As always, all real estate is local, so buyers and sellers should speak to their REALTOR® to understand how the housing market is shaping up where they live or are considering to live.”

Actual (not seasonally adjusted) activity came in 5.2 per cent below levels reported in January 2012. About two-thirds of local markets posted year-over-year declines in sales activity in January. Notable exceptions include Calgary, Edmonton, Winnipeg, Windsor-Essex, and Guelph.

“Year-over-year declines in activity have received attention lately, and understandably so since they’re more exciting compared to the fairly steady month-over-month trend for national sales following changes made last year to mortgage regulations and lending guidelines,” said Gregory Klump, CREA’s Chief Economist. “If national sales activity remains stable near the levels we’ve been seeing since last August, then year-over-year comparisons will begin fading after the crucial spring buying season. Until then, the focus may remain on how sales were stronger in the first half of last year compared to lower but stable national activity since then.”

The number of newly listed homes rose 1.6 per cent month-over-month in January, their first monthly increase since last September.

New listings rose in a number of Canada’s most active markets, led by Greater Toronto. The monthly increase there reversed a decline of similar magnitude one month earlier. New listings also rose in Greater Vancouver, Montreal, the Fraser Valley, and Vancouver Island, which also marked a reversal in a declining trend for new listings in the final months of 2012.

With sales and new listings both having edged higher, the national sales-to-new listings ratio was little changed at 50.3 per cent in January compared to 50.4 per cent in December. Its reading has held fairly steady around this level for the past six months. Based on a sales-to-new listings ratio of between 40 to 60 per cent, about two-thirds of all local markets were in balanced market territory in January.

The number of months of inventory is another important measure of balance between housing supply and demand. It represents the number of months it would take to sell current inventories at the current rate of sales activity, and it too was little changed in January.

Nationally, there were 6.6 months of inventory at the end of January 2013, down slightly from 6.7 months reported at the end of December. The number of months of inventory nationally has held between 6.5 and 6.7 months since August last year.

The actual (not seasonally adjusted) national average price for homes sold in January 2013 was $354,754, representing an increase of two per cent from January 2012. There were fewer sales compared to year-ago levels in relatively pricey Greater Vancouver, which continues to exert a strong gravitational pull on the national average sale price. Excluding Greater Vancouver from the national average price calculation yields a year-over-year increase of 3.3 per cent.

Unlike average price, the MLS® Home Price Index (MLS® HPI) is not affected by changes in the mix of sales, so it provides the best gauge of Canadian home price trends.

The Aggregate Composite MLS® HPI rose 3.1 per cent on a year-over-year basis in January. This marks the ninth time in as many months that the year-over-year gain shrank and the slowest rate of increase since April 2011.

Year-over-year price gains decelerated for one-storey single family homes (+4.4 per cent) and two-storey single family homes (+3.6 per cent). By contrast, year-over-year growth held steady for apartment units (+1.2 per cent), and picked up in the townhouse/row segment (+2.2 per cent).

The MLS® HPI rose fastest in Regina (+8.8% year-over-year), although the increase was the smallest since December 2011. Price growth also moderated in Greater Toronto (+3.8% year-over-year) and in Greater Montreal (+2.6% year-over-year).

By contrast, the MLS® HPI saw year-on-year growth accelerate in Calgary (+8.0%) and the Fraser Valley (+0.7%). In Greater Vancouver, the MLS® HPI posted a 2.8 per cent year-over-year decline in January.

Copyright CREA -reprinted with permission