Intra-provincial migration at 20-year high
Comment: This is exactly what started the boom in Calgary in 2006 when 25,000 people moved into town from all over Canada. This should drive the rental market vacancy rate down and increase rental prices. Then it will be more affordable to buy and the slack in the market will slowly get taken up; supporting home prices.
Good news for everyone in the housing industry and for home owners.
—- Nicolas Van Praet, Financial Post · Thursday, Jan. 27, 2011
MONTREAL — The number of Canadians moving to another province has punched to a high not seen in 20 years as people pack up in search of better jobs and salaries elsewhere.
Roughly 337,000 Canadians were on the move in 2010, says a report on interprovincial migration published Thursday by TD Economics. That’s 45,000 more than the year before and the most since the late 1980s. It also represents the largest share of the overall population since 1998.
“It’s a good sign in the sense that whenever you see that kind of movement, it’s an expression of a labour market that’s healing after a pretty severe recession,” said TD senior economist Pascal Gauthier, who wrote the study. “People are either returning home or moving to areas that didn’t have employment before. For those that are already employed, they’re finding potentially better prospects.”
Interprovincial migration matters because when there is a net movement of people to higher-employment and higher-productivity areas, that generates net economic output gains on a national basis. It’s also crucial for businesses because people often make big-ticket purchases when they move, which can have a significant impact on local housing and retail markets.
Canada’s situation lies in stark contrast with the United States, where census data show long-distance moves across states fell last year to the lowest level since the government began tracking them in 1948. Americans used to be a nation of big movers, with as many as one in five relocating for work every year in the 1950s. Now, experts are debating why they’ve become a nation of “hunkered-down homebodies,” as the New York Times put it.
Richard Florida, director of the Martin Prosperity Institute at the University of Toronto, says the United States is experiencing a new kind of class divide now between “mobile” people who have the resources and flexibility to pursue economic opportunity, and “stuck” citizens who are tied to places with weaker economies.
He argues the U.S. housing crisis is a big factor slowing mobility down. When the housing bubble popped, it left millions of Americans unable to sell their homes. “It’s bitterly ironic that housing, for so many Americans, has gone from being a cornerstone of their American dream to being a burden,” he wrote in a recent opinion piece.
Mr. Gauthier agrees that the housing crash is partly to blame for keeping Americans put. “There’s such a glut of supply that it’s just difficult to sell your house. In Canada, that’s not been an issue.”
In Canada, the biggest impediment to the free flow of labour between provinces and territories remains regulation as occupational requirements fall under provincial jurisdiction.
Workers in regulated professions and skilled trades, such as teachers and engineers, still face major barriers trying to work in provinces other than their own. Solving that problem will be key ahead of the looming labour force crunch, Mr. Gauthier argues.
Alberta, B.C. and Saskatchewan have seen the strongest net inflow of people of all provinces for the past three years and that will not change in the short term, the TD report forecasts. The three jurisdictions are working to implement a newly signed trade and labour mobility agreement between them that could eventually see seamless movement of workers between their borders.
TD says Ontario and Quebec will continue to lose residents to other provinces on a net basis, but the bleeding will be at a slower pace than in previous years. It says Manitoba and Prince Edward Island will be the only provinces still shedding a significant share of residents through the end of 2012.
In Manitoba’s case, it’s not that there aren’t any jobs. The province’s unemployment rate has been consistently lower than that of the rest of Canada since the 1990s. It’s that people are being lured by the prospect of higher-paying jobs in neighbouring provinces.
Landlords Dodge New CMHC Rule
Landlords Dodge New CMHC Rule
The recent changes to CMHC rules on qualifying for investment mortgage are having an effect that is causing havoc on an investor’s debt-service ratio, making it difficult for investors to qualify without a more-than stable personal income.
The following article discusses how recent investors are experiencing difficulty when qualifying for mortgages, and explores the best ways to avoid CMHC, highlighting that investors should deal with banks that “go outside of CMHC”.
We DO have lenders that still do the offset under certain circumstances. Call to find out how and when.
— Mark Herman
Article Source (Calgary, Alberta – Financial Post) – These are particularly confusing times to be a real estate investor due, for the most part, to a policy change made by the Canada Mortgage and Housing Corp. (CMHC) in April.
The major issue concerns mortgages on CMHC-insured properties with four complete units or less, which went from being calculated using an 80% offset model to a 50% add-back one. As reported in this paper, the offset model meant that up to 80% of the expected rental income is used to offset the cost of the mortgage. With the add-back model, half of the expected gross rental income will be added to an investor’s income, but the entire mortgage is added to expenses.
In other words, it wreaks havoc on an investor’s debt-service ratio, as was the case with full-time Toronto investor and consultant Cindy Wennerstrom, who is currently shopping for her eighth property but is “stuck, mortgage-wise,” she says.
“When banks take off 50% of the rent and apply that to your expenses, there is usually a deficit. That is subtracted from your actual income,” she says.
And with Ms. Wennerstrom’s other properties each producing a cash flow of $800 to $1,100 per month, there still isn’t enough to bring her to the desired debt-service ratio of 40%.
“That means 40% of your gross monthly income has to service your monthly debts,” says Barrie, Ont., broker Adam Bazuk. “That makes it very difficult to qualify investors unless they also have an enormous personal income.”
If that wasn’t difficult enough, the 50% add-back policy is not rubber-stamped across all lending institutions, with some allowing investors to use more than 50%, and others maintaining different versions of the offset program.
“It’s gone from a nice simple A or B plan, to an A, B and C plan, with all different ways to get there,” says Dustan Woodhouse, a B.C. mortgage broker with Invis.
Confusing, perhaps. But is it a bad thing?
Consider the 80% offset, for instance. “Everybody thought rental offset was gone,” says Mr. Woodhouse. “All they could see was that, based on a $1,000 monthly rental income, an 80% offset would qualify you for a $190,000 mortgage, while a 50% add-back would qualify you for $45,000, so it’s messed up the market from that perspective.”
But he says that for “organized property investors,” who have been reporting rental income on their T1 forms for the past two years, there are still good, if not better, options out there.
“Under the old rules, I would only be allowed to subtract 80%,” Mr. Woodhouse says.
While not a true 100% offset, it is the easiest way to explain the program, says Chris Hoeppner, a regional vice-president at Street Capital.
“If a client can provide the statement of real estate rentals from the T1 General, we just go with the net gain or net loss that property produces. As long as a person claims enough rental income to cover all the expenses, it basically becomes a wash, taking that property out of the debt servicing.”
But for those not so organized, who have not been reporting rental income on their T1 forms, there are still options.
As well, private mortgage insurers Genworth allows for rental offset.
Mr. Bazuk suggests avoiding CMHC by having a 20% or more down payment, and dealing with banks that “go outside of CMHC.” He also says Scotiabank, National Bank, Royal Bank of Canada and Canadian Imperial Bank of Commerce still offer a 70% offset arrangement, or are rental-property friendly.
Ms. Wennerstrom, despite being without a mortgage at the moment, is still confident.
“The option is still there, but you just have to buy the right properties,” she says, which means ones with “exceptionally positive cash flow.” To her, that’s more than $700 a month after expenses, plus a 10% reserve for maintenance and a 5.4% vacancy slush fund.
“After that, it’s just what sort of hoops to jump through to get the mortgage,” she says. “They will continue to change the rules and we will continue to find ways around them.”