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.
Top 10 Effects Of The New Mortgage Rules
We may not go 10 for 10, but crystal ball-gazing is fun nonetheless.
In this humble of spirits, we present ten trends to watch out for in 2011, courtesy of Flaherty & Co.’s new mortgage regime:
- Lower purchase and refinance demand will depress mortgage volumes, sparking greater rate competition as lenders battle for less business
- A small portion of home buyers will sprint to buy homes with a 35-year amortization before March 18, followed by downward pressure on home prices after March 18 as the amortization reduction removes market liquidity
- Negative personal consumption and wealth will result thanks to equity take-out restrictions, rising rates and softening home prices
- Unsecured debt usage will increase as homeowners are restricted from accessing as much of their equity, leading to even greater bank profits in unsecured lending
- Default rates will see no material improvement
- No significant improvement will occur in the number of risky borrowers, due to no change in TDS limits or Beacon score requirements
- HELOC rate discounts will be less frequent as some non-bank offerings disappear and HELOC funding costs inch higher
- Banks will pick up mortgage market share
- More private lenders will offer high-interest uninsured 2nd mortgages to 90% LTV
- If amortization restrictions accelerate falling home prices, we’ll see somewhat greater default risk and more negative equity situations among low-equity homeowners
Canada Prime Stays at
Consumer Prime is at 3%. At it will stay the same as well. Nice break for us after the gov’t changes the mortgage rules the day before.
As most predicted it would, the Bank of Canada announced today it is maintaining its target for the overnight rate at one per cent.
Housing crash is not likely to happen in Canada.
Ben is one of the best economists around and is usually correct….
However, Tal said that if rates rise, mortgage defaults will actually drop. He explained that is because rising rates imply rising employment, which influences defaults more than anything.
Canada’s homeownership affordability improves for the first time in over a year says RBC
TORONTO, Nov. 29 /CNW/ – After four consecutive quarters of rising homeownership costs, housing affordability improved in the third quarter of 2010 thanks primarily to a drop in mortgage rates and some softening in home prices, according to the latest Housing Trends and Affordability report released today by RBC Economics Research.
“The improvement in affordability during the third quarter has relieved some of the stress that had been mounting in Canada’s housing market over the past year,” said Robert Hogue, senior economist, RBC. “After appreciating rapidly during the strong rebound in resale activity last year and early this year, national home prices recently came off the burner and retreated modestly as market conditions cooled considerably through the spring and summer.”
The RBC Housing Trends and Affordability report notes that, at the national level, the third quarter improvement in affordability reversed almost two-thirds of the cumulative deterioration that took place over the previous four quarters. For the most part, the RBC Housing Affordability Measures returned to their levels at the end of 2009.
The RBC Housing Affordability Measure captures the proportion of pre-tax household income needed to service the costs of owning a specified category of home. During the third quarter of 2010, measures at the national level fell between 1.4 and 2.5 percentage points across the housing types tracked by RBC (a decrease represents an improvement in affordability).
The detached bungalow benchmark measure eased by 2.4 of a percentage point to 40.4 per cent, the standard condominium measure declined by 1.4 of a percentage point to 27.8 per cent and the standard two-storey home experienced the largest decrease, falling 2.5 percentage points to 46.3 per cent.
Despite some decline in home prices over last quarter, prices were still 5.8 to 6.8 per cent higher year-over-year at the national level. Conventional fixed mortgage rates came down in the third quarter, with the five-year posted rate (the basis on which the RBC Measures are calculated) falling more than 0.5 percentage points to an average of 5.52 per cent, entirely reversing the rise in the second quarter.
RBC notes that affordability could well improve further in the near term, with additional cuts in the posted five-year fixed rate already in place in the early part of the fourth quarter and previous home price increases still being rolled back in certain markets. However, RBC expects the Bank of Canada will resume its rate hiking campaign by the second quarter of next year, which will eventually have a more sustained upward effect on mortgage rates.
“Higher mortgage rates will be the dominant factor raising homeownership costs beyond the short term, although increasing household income – as the job situation continues to strengthen in Canada – will provide some positive offset,” added Hogue. “We expect housing demand and supply to remain mostly in balance overall, setting the course for very modest home price increases.”
All provinces saw improvements in affordability in the third quarter, particularly in British Columbia where elevated property values amplified the effect of the decline in mortgage rates on monthly mortgage charges. Ontario also experienced some notable drops in homeownership costs, pushing down the RBC Measures below their long-term average in the province for bungalows and condominiums. Alberta and Manitoba are the only two provinces where the RBC Measures stand below their long-term average in all housing categories, indicating little stress in these markets.
RBC’s Housing Affordability Measure for a detached bungalow in Canada’s largest cities is as follows: Vancouver 68.8 per cent (down 5.4 percentage points from the last quarter), Toronto 47.2 per cent (down 3.0 percentage points), Montreal 41.7 per cent (down 1.3 percentage points), Ottawa 38.2 per cent (down 2.9 percentage points), Calgary37.1 per cent (down 2.0 percentage points) and Edmonton 32.7 per cent (down 2.0 percentage points).
The RBC Housing Affordability Measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market in Canada. Alternative housing types are also presented including a standard two-storey home and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household’s monthly pre-tax income.
Highlights from across Canada:
- British Columbia: Lower home prices and declining mortgage rates brought the B.C. housing market some welcomed reprieve in the third quarter from the significant deterioration in affordability recorded since the middle of 2009. Amid much cooler resale activity through the spring and summer and greater availability of properties for sale, home prices either fell, particularly for bungalows, or remained stable in the case of condominium apartments. The RBC Housing Affordability Measures for B.C. dropped between 1.8 and 5.0 percentage points, representing the largest declines since the first quarter of 2009; however, all remained significantly above long-term averages. Poor affordability is likely to continue to weigh on housing demand in the province in the period ahead.
- Alberta: Despite recording substantial affordability improvements since early 2008, housing demand in Alberta is still a shadow of its former self from just a few years ago and there are few signs that it is picking up meaningfully. The RBC Measures eased between 0.8 and 1.8 percentage points, more than reversing modest rises in the second quarter. Homeownership is among the most affordable in Canada both in absolute terms and relative to historical averages. RBC notes such a high degree of affordability bodes well for a strengthening housing demand once the provincial job market sustains more substantial gains.
Calgary is 1 of North America’s Fastest Growing Cities
North America’s fastest-growing Cities
Forbes has indicated a bright future for Alberta’s premier city, naming Calgary one of North America’s fastest-growing metropolises. According to Forbes, with Canada’s and the US’ major land mass, the area is expected to develop more than 100 million by the year 2050.
The following article discusses North America’s growing cities, and highlights that easy-to-manage cities that are less crowded and more affordable can expect to be driven in large part by continued migration.
—
Article Source (Financial Post – Calgary, Alberta) – The U.S. and Canada’s emerging cities are not experiencing the kind of super-charged growth one sees in urban areas of the developing world, notably China and India. But unlike Europe, this huge land mass’ population is slated to expand by well over 100 million people by 2050, driven in large part by continued immigration.In the course of the next 40 years, the biggest gainers won’t be behemoths like New York, Chicago, Toronto and Los Angeles, but less populous, easier-to-manage cities that are both affordable and economically vibrant.
Americans may not be headed to small towns or back to the farms, but they are migrating to smaller cities. Over the past decade, the biggest migration of Americans has been to cities with between 100,000 and 1 million residents. In contrast, notes demographer Wendell Cox, regions with more than 10 million residents suffered a 10% rate of net outmigration, and those between 5 million and 10 million lost a net 2.4%.
In North America it’s all about expanding options. A half-century ago, the bright and ambitious had relatively few choices: Toronto and Montreal for Canadians or New York, Chicago or Los Angeles for Americans. In the 1990s a series of other, fast-growing cities — San Jose, Calif.; Miami; San Diego; Houston; Dallas-Fort Worth, Texas; and Phoenix — emerged with the capacity to accommodate national and even global businesses.
Now several relatively small-scale urban regions are reaching the big leagues. These include at least two cities in Texas: Austin and San Antonio. Economic vibrancy and growing populations drive these cities, which ranked first and second, respectively, among large cities on Forbes’ “Best Places For Jobs” list.
Austin and San Antonio are increasingly attractive to both companies and skilled workers seeking opportunity in a lower-cost, high-growth environment. Much the same can be said about the Raleigh-Durham area of North Carolina, and Salt Lake City, two other U.S. cities that have been growing rapidly and enjoy excellent prospects.
One key advantage for these areas is housing prices. Even after the real estate bust, according to the National Association of Homebuilders, barely one-third of median-income households in Los Angeles can afford to own a median-priced home; in New York only one-fourth can. In the four American cities on our list, between two-thirds and four-fifths of the median-income households can afford the American Dream.
Advocates of dense megacities often point out that many poorer places, including old Rust Belt cities, enjoy high levels of affordability, while more prosperous regions, such as New York, do not. But lack of affordability itself is a problem; areas with the lowest affordability, including New York, also have suffered from high rates of domestic outmigration. The true success formula for a dynamic region mixes affordability with a growing economy.
Our future cities also are often easier for workers and entrepreneurs alike. Despite the presence of the nation’s best-developed mass transit systems, the longest commutes can be found in the New York area; the worst are for people living in the boroughs of Queens and Staten Island. As a general rule, commuting times tend to be longer than average in some other biggest cities, including Chicago and Washington.
In contrast, the average commutes in places like Raleigh or San Antonio are as little as 22 minutes on average — roughly one-third of the biggest-city commutes. Figure over a year, and moving to these smaller cities can add 120 hours or more a year for the average commuter to do productive work or spend time with the family.
Similar dynamics — convenience, less congestion, rapid job growth and affordability — also are at work in Canada, where two cities, Ottawa (which stretches from Ontario into Quebec) and Calgary, stand out with the best prospects. Many Canadians, particularly from Vancouver, would dispute this assertion. But Vancouver, the beloved poster child of urban planners, also suffers extraordinarily high housing prices–by some measurements the highest in the English-speaking world. This can be traced in part to the presence of buyers from other parts of Canada and abroad, particularly from East Asia, but also to land-use controls that keep suburban properties off the market.
Calgary, located on the Canadian plains, not much more than an hour from the Rockies, retains plenty of room to grow, and its housing price-to-income ratio is roughly half that of Vancouver’s. Calgary is also the center of the country’s powerful energy industry, which seems likely to expand during the next few decades, and its future is largely assured by soaring demand from China and other developing countries.
The other Canadian candidate, the capital city of Ottawa and its surrounding region, has developed a strong high-tech sector to go along with steady government employment. Remy Tremblay, a professor at the University of Quebec at Montreal, notes that Ottawa “is changing very rapidly” from a mere administrative center to a high-tech hotshot. Yet for all its growth, it remains remarkably affordable in comparison with rival Toronto, not to mention Vancouver.
In developing this list we have focused on many criteria — affordability, ease of transport and doing business–that are often ignored on present and future “best places” lists. Yet ultimately it is these often mundane things, not grandiose projects or hyped revivals of small downtown districts, that drive talented people and companies to emerging places.
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.”
TD changing to collateral loans for mortgages – the bad news
TD is changing their mortgages to collateral loans as standard.
We think this is to keep people from refinancing with another bank because TD is not offering competitive rates. There are also some other negative points to the new TD mortgage listed below:
Cons:
- Most chartered banks will not accept “transfers” of collateral mortgages from other chartered banks. If the consumer wishes to switch their collateral mortgage to another lender upon maturity, there will be legal & appraisal costs. Approx $750-$1000
- Upon maturity, would the lender offer only a posted fixed rate or just a slightly lower rate knowing the costs associated with transferring to another lender has legal & appraisal costs.
- Collateral charges allow lenders to change the interest rate and/or loan more money to qualified borrowers after closing. On secured lines of credit, the interest rate registered at Prime + upwards of 10%.
- Collateral loan involves the other debts you may have. Under Canadian law, a lender may seize equity to cover other debt you have with the same lender. So, in essence, you’re possibly securing all your loans that you have with that financial institution; be it credit cards, unsecured lines of credit, car loans, or overdraft etc.
Now the Pros:
I can’t think of any!
Ensure you do your home work on TD mortgages. There are lots of other lenders and lots of alternatives.
Canadian Prime staying at 3% – maybe for half a year
Comment – this article exactly summarizes our thoughts for how things will play out:
Prime will stay at 3% for 6 months, mortgage rates will stay low as long as the stock market bounces all over the place and now is a great time to take advantage of the situation by redoing our mortgage or buying.
Bank of Canada holds key rate at 1%
OTTAWA — Interest rate hikes are on hold until at least the spring and maybe as long as late 2011, analysts say, as the Bank of Canada decided Tuesday to keep its policy rate unchanged amid weaker-than-anticipated growth, especially in the United States.
The Canadian dollar fell by more than two cents at one point following the decision, as the central bank signalled the country would need to rely more on net exports for growth — a sign, economists added, the loonie’s value would be a key consideration in future rate decisions.
The central bank said it scaled back its growth projections for this country as the global recovery enters a “new phase.” It now expects GDP to expand just three per cent this year and 2.3 per cent in 2011, compared to expectations in July for advances of 3.5 per cent and 2.9 per cent, respectively. Second-quarter GDP growth, at two per cent annualized, was well below the central bank’s forecast of three per cent expansion.
Further, the Bank of Canada said it does not envisage the Canadian economy reaching full potential until the end of 2012, or one year later than previously expected. The same timeline applies to inflation — which guides all interest-rate decisions — as the “significant” excess slack would keep consumer prices increases from reaching the desired 2% level for another two years.
“This is not just a data watching central bank that is keeping its powder dry in order to evaluate developments over coming months — this is a central bank that has totally revised its outlook and market guidance,” said analysts at Scotia Capital. “To us, the Bank of Canada is saying they are on hold until late next year.”
The central bank also signalled the composition of growth is set to change, with less emphasis on consumer spending and increased reliance on business investment and net exports.
The Canadian dollar recovered slightly after its initial drop. It was trading around 96.92 cents U.S. at 11 a.m., down from Monday’s close of 98.61 cents U.S..
Jonathan Basile, economist at Credit Suisse Securities in New York, said this indicates the Bank of Canada “will be watching the Canadian dollar more closely” as strength in net exports is predicated on a loonie that doesn’t strengthen too much against its U.S. counterpart.
The statement “appears to be a pretty clear signal of the Bank of Canada’s intention to pause,” said Michael Woolfolk, managing director at BNY Mellon Global Markets in New York. “Moreover, it suggests that the central bank may pause longer than expected. With the Bank concerned now about the economy’s increasing reliance on net exports, it will take particular care not to unnecessarily bolster the loonie through future rate hikes.”
Economists at Royal Bank of Canada and Toronto-Dominion Bank told clients that March of next year might be the earliest at which the central bank resumes rate hikes.
“The economic outlook for Canada has changed,” said the central bank, led by governor Mark Carney. “(A) more modest growth profile reflects a more gradual global recovery and a more subdued profile for household spending” as real-estate activity slows and consumers deal with their personal debt.
The decision to keep key rate unchanged leaves “considerable monetary stimulus” in place to achieve the central bank’s preferred two per cent target, the central bank indicated.
Plus, Basile said the central bank signalled three factors that stand in the way of future rate hikes: a weaker U.S. outlook; constraints curbing growth in emerging-market economies; and domestic considerations, most notably household debt.
Tuesday’s rate statement reflects a more dovish tone from the central bank compared to its last decision roughly six weeks ago, when it opted to raise its benchmark interest rate by 25 basis points for a third consecutive time. More detail regarding the central bank’s outlook will emerge Wednesday when the Bank of Canada releases its latest quarterly economic outlook.
The big game-changer, analysts say, is the tepid U.S. economy and the signals from the U.S. Federal Reserve that it’s preparing to inject additional liquidity in the economy through asset purchases, with a dual goal of lowering borrowing costs and boosting inflation expectations.
As a result, a pause from the Bank of Canada “is entirely justifiable,” said Eric Lascelles, chief Canadian strategist at TD Securities, in a note to clients prior to the release of the central bank’s decision. “The thought that if the U.S. needs (further easing), the economic prospects for the U.S., and by extension Canada, are also threatened.”
The Bank of Canada said the global economic recovery is entering a “new phase,” as the factors supporting growth in advanced economies, such as the rebuilding of inventories and pent-up demand, subside just as fiscal stimulus is wound down.
“The combination of difficult labour market dynamics and ongoing de-leveraging . . . is expected to moderate the pace of growth relative to prior expectations,” the central bank said. “These factors will contribute to a weaker-than-projected recovery in the United States in particular.”
Growth in emerging economies is expected to ease as governments in those markets put the brakes on stimulus spending and raise borrowing costs. As it happened, China raised interest rates earlier Tuesday.
And recent moves by emerging markets and advanced economies to intervene in foreign-exchange markets was highlighted by the Bank of Canada as a further risk to the global economic recovery. “Heightened tensions in currency markets and related risks associated with global imbalances could result in a more protracted and difficult global recovery,” the central bank said.
The warning emerges just days before a key Group of 20 meeting of finance ministers and central bankers in South Korea in which foreign-exchange policies is now expected to dominate the agenda. Both Carney and Finance Minister Jim Flaherty are set to attend the meeting.
© Copyright (c) Postmedia News
TD mortgages get harder to get out of
Comment:
TD mortgages just became less appetizing as they are now very difficult to get out of. We do not use them much and now even less.
TD bank overhauls mortgage program