CANADIAN HOMEOWNERSHIP COSTS EASE FOR SECOND CONSECUTIVE QUARTER: RBC ECONOMICS
This is great news.
TORONTO, Feb. 24 /CNW/ – Canada’s housing affordability continued to improve in the fourth quarter of 2010, thanks in part to slight decreases in five-year fixed mortgage rates and minimal home price appreciation across the country, according to the latest Housing Trends and Affordability report released today by RBC Economics Research.
“Some of the stress that had been building in the housing market between 2009 and the first half of 2010 has been relieved, but tensions persist overall and the recent improvement in affordability is likely to be short-lived,” said Robert Hogue, senior economist, RBC. “We expect that the Bank of Canada will resume its rate hike campaign this spring and with borrowing costs set to climb further in the next two years, housing affordability will erode across the country. That said, we don’t expect this to derail the housing market because of rising household income and job creation from the sustained economic recovery.”
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 fourth quarter of 2010, measures at the national level fell between 0.4 and 0.8 percentage points across the housing types tracked by RBC (a decrease represents an improvement in affordability).
The detached bungalow benchmark measure eased by 0.8 of a percentage point to 39.9 per cent, the standard condominium measure declined by 0.4 of a percentage point to 27.6 per cent and the standard two-storey home decreased 0.4 percentage points to 46.0 per cent.
“We expect affordability measures will rise gradually in the next three years or so while monetary policy is readjusted, but will land softly thereafter once interest rates stabilize at higher levels,” added Hogue. “This pattern would be consistent with moderate yet sustained stress on Canada’s housing market. Overall, the era of rapid home price appreciation of the past 10 years has likely run its course and we believe that Canada has entered a period of very modest increases.”
A majority of provinces saw improvements in affordability in the fourth quarter, most notably in Alberta where falling home prices once again contributed to lower the bar for affording a home. Only the standard two-storey benchmark became less affordable in Ontario and Quebec, as did the standard condominium apartment in Quebec and the Atlantic region.
RBC’s Housing Affordability Measure for a detached bungalow in Canada’s largest cities is as follows: Vancouver 68.7 per cent (down 0.4 percentage points from the last quarter), Toronto 46.8 per cent (down 0.5 percentage points), Montreal 41.3 per cent (down 0.4 percentage points), Ottawa 38.7 per cent (up 0.5 percentage points), Calgary 34.9 per cent (down 3.1 percentage points) and Edmonton 31.0 per cent (down 2.4 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: Buying a home in B.C. became slightly more affordable in the fourth quarter of 2010, due primarily to a small drop in mortgage rates. After experiencing some declines in the previous quarter, home prices rose modestly for most housing categories; condominium apartments bucked the trend, however, and depreciated slightly. Prices were supported by a tightening in market conditions with home resales picking up smartly following substantial cooling in the spring and summer that saw sellers lose their edge in setting property values. Demand and supply in the province are judged to be quite balanced at this point. RBC’s Affordability Measures fell between 0.8 and 1.0 percentage points in the fourth quarter which came on the heels of much more substantial drops (1.7 to 4.8 percentage points) in the third quarter. Notwithstanding these declines, affordability remains poor and will weigh on housing demand going forward.
- Alberta: Alberta officially became the most affordable provincial market in the country in the fourth quarter, according to the RBC Measures which fell once again by 1.0 to 2.4 percentage points, extending their declines since late-2007. In addition to the lower mortgage rates, the further depreciation of home prices contributed to lowering homeownership costs. Property values were negatively affected by a substantial downswing in demand in the spring and early summer, which put buyers in the drivers’ seat. The significant improvement in affordability is near the end of its line, however, as demand has shown more vigour in recent months – alongside a provincial economy that is gaining more traction – and the market has become better balanced. RBC expects that this will stem price declines this year, thereby removing a potential offset to the negative effect of projected rise in interest rates on affordability.
‘Window closing’ on ultra-low mortgage rates
Tim Shufelt, Financial Post · Monday, Feb. 7, 2011
Amid the noise of volatile-but-improving economic indicators, mortgage rate hikes are likely to repeat like a chorus in the coming months.
Canadian banks are raising interest rates on mortgages, marking the beginning of a trend as they correlate with rising bond yields and expected monetary tightening.
That’s making a strong case for borrowers to lock into fixed rates before it’s too late, said Benjamin Tal, deputy chief economist with CIBC World Markets. “The window is closing.”
TD Canada Trust and CIBC both announced Monday hikes to their residential mortgage rates, the first increases since changes to the rules of borrowing were announced by the federal government last month. The other big banks where expected to follow the moves shortly.
Effective Feb. 8, the interest rate on the banks’ benchmark five-year closed fixed rate mortgage will increase 25 basis points to 5.44%. The country’s other major lenders are expected to soon follow suit.
Toronto mortgage broker Paula Roberts said rising borrowing costs will compel more of her clients to abandon ultra-low variable rates in favour of higher, fixed-rate mortgages.
That can be a tough decision for borrowers to accept higher payments, but not one that should strain a mortgagee’s finances, she said.
“If you can’t afford [your payments] … that’s a problem,” Ms. Roberts said. “That’s why the government has changed the rules.”
In two stages over the past year the federal government announced changes to the conditions of mortgage lending — shortening the maximum amortization from 35 years to 30 years and requiring borrowers to qualify for a fixed-rate plan, even if they are opting for a variable rate.
Many who only qualify under the old rules, however, will try to secure mortgages before the shorter maximum amortization periods come into effect next month, Ms. Roberts said.
“There are going to be a lot of people that will enter into their agreements by March 18.”
Much of the momentum in mortgage rates can be attributed to a bond selloff and rising yields across the board. That effect is partly a reflection of building global inflationary pressures as well as a global economy that is proving more robust than expected.
“In my opinion, the bond market will not be the place to be over the next six months, and if that’s the case, you will see mortgage rates continue to rise,” Mr. Tal said.
In addition, anticipation of increases to the Bank of Canada’s benchmark lending rates is building, also contributing to rising yields, which puts pressure on fixed-income mortgages.
If there was any lingering doubt that the Bank will soon raise rates, last week’s jobs report erased them. The report showed Canada added four times more jobs than expected in January.
“[It] creates a fairly powerful story for the Bank of Canada, which is clearly concerned on the domestic front,” said Camilla Sutton, chief currency strategist at the Bank of Nova Scotia. “I think there’s a material change.”
So do investors. The probability that the central bank will boost its key policy rate by May, as measured by overnight index swaps, jumped to almost 75% after the jobs data. http://www.financialpost.com/news/Window+closing+ultra+mortgage+rates/4239243/story.html#ixzz1DMwQzyWP
ALBERTA’S ECONOMY SET FOR STRONG GROWTH IN 2011 WITH BOOST FROM ENERGY SECTOR: RBC ECONOMICS
Comment – this is some of the data that was used in my MARKet Update / Buyers Report. Feel free to download it for free on my site here: http://markherman.ca/Rate2.ubr
ALBERTA’S ECONOMY SET FOR STRONG GROWTH IN 2011 WITH BOOST FROM ENERGY SECTOR: RBC ECONOMICS
TORONTO, Dec. 15 /CNW/ – Alberta’s economy continues to recover from its severe recession with real GDP set to grow 3.4 per cent in 2010 and then galloping to a solid 4.3 per cent in 2011, according to the latest Provincial Outlook report from RBC Economics. In 2011, RBC projects that Alberta’s economic growth will be second only to Saskatchewan, representing the fastest growth in the province since 2006.
Alberta’s strong forecast is owed to improvements in a number of areas, particularly the booming energy sector and increased job creation since spring which helped to bring down the stubbornly high unemployment rate.
“Improvements in the employment market helped reverse the net migration outflow to other provinces that earlier slowed population growth to the lowest rate in 15 years,” said Craig Wright, senior vice-president and chief economist, RBC. “These are the kinds of turnarounds that will spread the recovery more widely throughout Alberta’s economy next year.”
The RBC report notes Alberta’s employment sector is expected to lead the country with a rise of 2.3 per cent in 2011, up significantly from a scant 0.5 per cent in 2010. The anticipated increase represents the creation of 37,000 jobs and will usher in the highest total of new employment opportunities since 2007 which should ultimately contribute to a boost in population growth.
“With interest in developing Alberta’s oil sands growing ever higher, the gush of capital spending on megaprojects is expected to continue next year and beyond. This will pump tremendous activity into the provincial economy and act as a catalyst for both faster job growth and stronger migration from outside the province,” added Wright.
According to the RBC Economics Provincial Outlook, the impact of Alberta’s strengthening demographics will be especially positive for consumer spending in 2011 as retail sales are expected to soar to a rate of 5.6 per cent, higher than any other province. This, along with the 5.1 per cent increase in consumer spending expected this year, will go along way toward reversing the massive 8.4 per cent decline experienced in 2009.
Looking ahead to 2012, the rising tide of energy-related spending and the expanding of non-conventional oil production will continue to exert powerful lifting forces throughout the Alberta economy. RBC forecasts the province will sustain a solid pace of growth with GDP of 3.8 per cent which will keep the province near the top of Canada’s growth rankings.
The RBC Economics Provincial Outlook assesses the provinces according to economic growth, employment growth, unemployment rates, retail sales, housing stars and consumer price indexes.
Real gross domestic product rose 0.4% in November
Real gross domestic product rose 0.4% in November after growing by 0.2% in October. Oil and gas extraction led the way in November, followed by wholesale and retail trade, real estate and the finance and insurance sector. Manufacturing declined, largely as a result of temporary plant shutdowns for retooling in the motor vehicle assembly industry and shift reductions in the motor vehicle parts industry. Construction also decreased.
Mining and oil and gas extraction continue to strengthen
Oil and gas extraction grew 2.4% in November. This increase was mainly attributable to higher synthetic crude petroleum production following the completion of maintenance to upgraders. Natural gas production was unchanged.
However, support activities for mining, oil and gas extraction declined 3.4% as a result of decreases in rigging and drilling activities.
n mining, iron ore extraction grew 10.8% returning to its August level after two consecutive monthly declines.
Gains in wholesale and retail trade
Wholesale trade rose 1.5% in November on the strength of trade in machinery and equipment, farm products, building materials as well as food, beverage and tobacco products. Wholesale activity in motor vehicles fell during the month.
Retail trade advanced 1.4% in November after a slight decline the month before. It was the second largest monthly increase in 2010 after the 2.1% gain in March. Growth in November was mostly attributable to clothing and accessory stores, new car dealers as well as food and beverage stores. Retail activity at gasoline stations and home electronics stores declined.
Finance and insurance resume growth
The finance and insurance sector rose 0.7%. There were increases in the volume of trading on the stock exchanges, in personal lending and in mortgages. The sales of mutual funds declined.
Manufacturing down
Manufacturing declined 0.8% in November. Most of the decline was the result of temporary plant shutdowns for retooling in the motor vehicle assembly industry and shift reductions in the motor vehicle parts industry. Excluding the motor vehicle and associated parts industries, the manufacturing sector was down 0.2%. Output at refineries rebounded 4.6% following the end of maintenance work at various plants.
Real estate market up while construction drops
There was a widespread increase in the home resale market across the country in November, leading to a growth of 7.6% in the output of real estate agents and brokers. This marked a fourth consecutive monthly increase for this industry. However, its level of output was still 8% below that recorded in April.
Construction declined 0.4% in November. Residential building construction continued to retreat as a result of reduced demand for single and semi-detached homes. Non-residential building construction decreased 0.2% while engineering and repair work edged up 0.1%.
Canadians Better Off, Even If They Don’t Feel It
Comment – Politics aside, we are coming off of the worst economic recession of our lifetimes. Numbers below show us back to where we were before the recession started. Governments debt loads are supposed to be high, government spending was supposed to kick in to keep us going – and it did.
Canadians Better Off, Even If They Don’t Feel It
John Ivison, National Post ·
Jan. 23 marks the fifth anniversary of Stephen Harper’s 2006 election victory and in early February, he will pass Lester B. Pearson’s time in office to become Canada’s 11th longest-serving prime minister. As Mr. Harper told Postmedia News this week, it has been a roller-coaster ride: “Some days it feels like five months, and other days it seems like 50 years.”
The five-year milestone has presented the Liberal leader, Michael Ignatieff, with his latest electoral gambit — to ask middle-class Canadian families whether they are better off after half a decade of the Harper government?
In fact, by almost every pocketbook metric, Canadian families are better off than they were five years ago –even if they don’t feel it.
The new strategy emerged from research carried out by the Liberals’ pollster, Michael Marzolini, as part of his firm Pollara’s annual nationwide poll of Canadians’ personal financial expectations. He found a new sense of caution and retrenchment, after optimistic expectations for 2010 were not met.
According to the Pollara poll, middle-class Canadians feel themselves under siege, with four in 10 claiming their incomes are failing to keep pace with the cost of living. They are anxious about their retirement, family debt and the value of their investments. Many Canadians believe every step forward they make is being hampered by assaults on their incomes such as new taxes and user fees. Ominously for the government, they appear less than impressed about claims Canada is doing better than its international competitors — the economy may be improving but they feel their own situation is not.
Mr. Ignatieff has leapt on the survey’s findings on his current 20-event, 11-ridings winter tour, making the claim that Canadians are worse off and the economy is weaker.
He is gambling that voters look at their own situation and calculate whether they have done well over the past five years. If the answer is yes, they will vote for the party they voted for before but, if not, he hopes they can be persuaded to switch.
Mr. Ignatieff’s central contention is that Canadians’ standard of living — as measured by GDP per person–has fallen 1.3% since the Harper government came to power.
The only problem with this for the Liberal leader is that it isn’t true — real GDP per capita did fall between 2005 and 2009, the trough of the recession, but has since recovered. If you annualize the first three quarters of 2010, the numbers show real GDP per capita is up
0.2% over the 2005 figure.
Other indicators are similarly positive.
Average hourly wages have outpaced inflation, especially for men, who now earn $4 an hour more than they did at the end of 2005.
The fiscal and monetary response to the recession has created one very real problem identified by Mr. Ignatieff — an extremely high level of indebtedness. Encouraged by cheap interest rates, Canadians now owe $1.50 for every dollar of disposable income, up from $1.08 in 2006.
Yet, national net worth per capita, which measures the health of assets like homes and investments, stood at a record high of $179,000 in the third quarter of 2010, up from $155,000 five years ago. Even at the bottom end of the socioeconomic ladder, the number of children living in low-income families fell by 250,000 between 2003 and 2008.
Retirement income is another leading concern raised by the Liberals but many more Canadians are now members of registered retirement plans than in 2005.
And the feeling that the tax burden is growing is also illusory, at least according to the Fraser Institute’s Tax Freedom Day, the day on which the average Canadian family has earned enough money to pay all taxes imposed on them by three layers of government. It advanced to June 5 in 2010, from June 23 in 2005.
These bald statistics don’t tell the whole story, of course. In the intervening years, there was a painful recession that saw unemployment spike at 8.7% in August 2009 (it is now sitting at 7.6%, still higher than the 6.8% in 2005).
Canadians remain anxious. According to Mr. Marzolini’s research, two-thirds of the population thinks we’re still in recession.
Yet, crucially, voters do not seem to blame the federal government, perhaps accepting that, if things are not noticeably better than they were five years ago, they could have been immeasurably worse.
Non-Conservatives can claim with some justification that the Harper government’s record of achievement is pretty penny ante when compared with other five-year-old administrations.
But the picture improves when you consider what didn’t happen. Mr. Harper is an incrementalist who agrees with Canada’s longest-serving prime minister, William Lyon Mackenzie King, that “it’s what we prevent, rather than what we do, that counts in government.”
The pressures of power have forced Mr. Harper, by his own admission, to make compromises he never thought he would have to make. “We spent the first three years of our government in a situation where people were saying, ‘Why don’t you take more risks? Why don’t you make more grandiose commitments? Why don’t you have a bigger more ambitious agenda on anything?’ And then all of a sudden, we’re spending the next two years dealing with a crash in the global economy and trying to operate a situation where we’re trying to protect what everybody has. So things just change constantly and you do have to be adaptable,” he told Postmedia’s Mark Kennedy this week.
There appears to be some appreciation that the Conservatives have provided solid, if stolid, government through the recession.
An Ipsos Reid poll before Christmas suggested six in 10 Canadians believe the political process is operating well and there is no need for an election. They may not vote Conservative, but they are not so disgruntled they are demanding change — at least not to the extent they have coalesced around Mr. Ignatieff or any of the other opposition leaders. This bodes well for Mr. Harper, sincegovernmentstraditionally find themselves in real trouble when the time-for-change number rises above 60%.
“Every election comes down to that — continuity or change,” said Darrell Bricker, president of Ipsos Public Affairs. “Mr. Ignatieff is trying to increase the desire for change that is a pre-condition [for a Liberal government]. But Canadians are not overwhelmingly concerned about the economy and even if they become more concerned, his opponent is leading him on the issue by 20 points.”
The Liberals insist that stress about the future has created enough volatility to give them a fighting chance. “Perceived reality is often a self-fulfilling prophesy,” said Mr. Marzolini, the Liberal pollster, as he unveiled his New Year’s poll to the Economic Club of Canada.
Mr. Ignatieff had best hope so, otherwise Mr. Harper will pass both R.B. Bennett (five years and 77 days) and John Diefenbaker (five years and 305 days) to become Canada’s ninth-longest serving prime minister before the end of this year.
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.”