Kile Meiklejohn Real Estate Team

More Mortgage Rules Clarified

The speculation from the governments February 16^th mortgage rule changes is over. They  finally ruled on which interest rate consumers are to qualify, based on fixed terms less than 5 years and variable rate mortgages after April 19^th, 2010 but only if you require an insured mortgage, meaning less than 20% down.

The changes are as follows:

*Fixed term mortgages less than 5 years and Variable Rate Mortgages (VRM’s) all have to qualify at the Bank of Canada’s posted rate (which today is 5.39%). These will be posted by the Bank of Canada every Monday morning.

*If you have a 5 year fixed or longer interest rate term, then you can qualify based on that lenders’ discounted interest rate, if they offer one (Mortgage Brokers and Agents all deal with easily available and the best discounted interest rates). For example, if you choose the 5 year fixed rate mortgage, and if the Bank of Canada posted five year fixed rate is 5.39%, and you want the 5 year fixed but have chosen a lender that offers a lower discounted rate of 3.79%, the 3.79% is the rate the lender can qualify your mortgage on.

During the average year, approximately two thirds of Canadians choose a 5 year fixed rate term anyway, so this only affects those that want less than five year terms, and VRM’s. During 2009 and up to today, with the super low emergency interest rates, 92% of Canadians taking out a new mortgage chose the 5 year option, telling us that this new government program wouldn’t have affected that many consumers during the past 14 months.

Going forward, it’s going to affect consumers that choose the shorter terms and those that chose the VRM’s in the coming years as lenders come out with the discounts they had previous to September 2008.

To put this into perspective, if you had to qualify based on the current system of most responsible lenders’ systems and used the 3 year discounted rate as the qualifying measure (for mortgages with less than a 3 year term) then the qualifying difference between the two programs is only about $10,000.00 in mortgage amounts comparing it to a lender that today has a 3.69% 5 year fixed rate, which would be the new mandated qualifying criteria.

However, the qualifying difference is huge if you wanted the VRM or less than 5 year term on the new program and have to qualify based on the posted rate. In effect this is going to make the 5 year fixed discounted program even more popular going forward.

Simply put, these new measures aren’t going to affect a huge qualifying change for the average Canadian buying a home, as most of us opt for the 5 year fixed rate mortgage anyway as we enjoy the safety and security of the 5 year fixed program. So it’s a great thing that the government essentially left the 5 year fixed program alone.

 And those that want the VRM or shorter term mortgages usually have more than 20% equity in their property anyway as they can afford and want to take that little extra risk with their mortgage. 

Jean-Guy Turcotte is a Mortgage Professional with Regional Mortgage Corporation and can be reached at 403-343-1125 or jturcotte@regionalmortgage.ca

Housing Set To Surge

By Harley Richards - Red Deer Advocate

Published: March 03, 2010 6:40 AM
Updated: March 03, 2010 8:06 AM

New Mortgage Rules For April 2010

February 16, 2010
New Mortgage Rules: The Good, The Bad, The Ugly
On April 19 our government will lay down three major rule changes to “prevent” a housing-price bubble and keep homeowners from getting “overextended.”
Here is the official announcement from today:  Finance Department release
These new rules apply to government-backed insured mortgages only.

The Good:  5-Year Fixed Qualification Rates
The New Rule:  Borrowers will need to qualify using a 5-year fixed rate regardless of what term they choose.  If you want a 1.95% variable rate, for example, you will need to show that you can afford payments at a higher fixed rate, like 4.09%.
The Government’s Reasoning:  “This initiative will help Canadians prepare for higher interest rates in the future.”
The Effect: It will now be harder to qualify for a variable-rate mortgage, but not much harder. Most lenders already use three- or five-year mortgage rates to calculate a borrower’s debt service ratios.  For many discount lenders, this means the qualifying rate will go from something like 3.25% to 3.89%—not a huge difference.
The Verdict: A sound and necessary change--although many lenders already use similar guidelines.

The Bad:  90% Maximum Refinancing
The New Rule:  No longer will you be able to refinance your home to 95% of it’s value. 90% will be the new refinance maximum.
The Government’s Reasoning:  “This will help ensure home ownership is a more effective way to save.”
The Effect:  Borrowers will be less able to pay off high-interest debt with lower-cost mortgage money.  On the upside, this rule has the positive effect of keeping equity in the home (which is quite helpful when home prices fall). It also discourages homeowners from relying on home equity to bail themselves out when they accumulate debt.
The Verdict:  Bad…for people who need to restructure debt in an effort to pay more principal and less interest.  On the other hand, a 90% refinance limit is beneficial in that it deters people from racking up debt and using their homes as a proverbial ATM machine.

The Ugly:  80% Maximum Insured Financing On Rentals
The New Rule:  People buying non-owner occupied rental properties will need to put down 20% to get an insured mortgage, versus 5% previously.
The Government’s Reasoning: To reduce speculation.
The Effect:  The number of investors creating rental housing will drop notably. Investors will need to borrow down payment funds elsewhere (assuming it’s allowed) or use higher-cost non-insured lenders (like TDFS) to get 90% financing. Note: This rule does not apply to multi-unit owner-occupied homes with rental units (like duplexes and triplexes).
The Verdict:  Ugly.  How the government can go from 100% rental financing (17 months ago) to 80% today is confounding. The intent is understandable, but the government could have increased net worth requirements, increased Beacon minimums, tightened debt servicing guidelines, or limited the number of insured rental mortgages a person can qualify for. Instead, the solution was near-draconian, and it will have an effect on the rental stock in Canada. Will it cause a material rise in rents?  That’s a tough call, but it will definitely reduce the supply of rental units and limit Canadians’ investment options.
What to Expect:
Undoubtedly there will be a rush of applications to beat the April 19 deadline. 
The government says “Exceptions would be allowed after April 19 where they are needed to satisfy a binding purchase and sale, financing, or refinancing agreement entered into before April 19, 2010.”
The 80% rental rule will crush the income property financing business for some lenders and brokers.
If history is a guide, certain lenders will implement these guidelines early (i.e.  before April 19).
Interestingly, Minister Flaherty took a small jab at lenders in his release today, saying these rule changes are designed to “help prevent some lenders” from “facilitating” irresponsible lending. 
"If some lenders aren't willing to act themselves, we will act,” said Flaherty.  That’s bold talk given that Canadian lenders have exceptionally low default rates, and already conform their mortgages to all existing government guidelines.
 
Jean-Guy Turcotte
Mortgage Professional
Regional Mortgage Corporation
403-343-1125 local
403-343-1126 fax
403-391-2552 cell
866-343-1125 toll free
www.jeanguyturcotte.com
jturcotte@regionalmortgage.ca
 
"Changing lives one home at a time."
 
"The highest compliment I can receive is a referral from a friend."

MLS® home sales forecast revised

OTTAWA – November 16, 2009 – Monthly MLS® home sales activity continues to run strong, with new monthly records set in July, September, and October.  This has prompted The Canadian Real Estate Association to revise its MLS® home sales forecast for 2009 and 2010.

CREA now forecasts national activity will reach 460,200 units in 2009, up 6.6 per cent from last year. CREA’s previous forecast issued in August had annual sales this year about even with 2008 levels. The new sales forecast for 2009 puts activity about on par with annual activity in 2004, but below levels reported for the years 2005 through 2007.

British Columbia and Ontario are still forecast to post annual increases in activity this year, but the forecast has been lifted as a result of recent record level activity in both provinces. In addition, Alberta, Saskatchewan, Quebec, and Prince Edward Island are also now forecast to post an annual increase in activity in 2009. Forecast declines in annual activity have been trimmed for Manitoba and Nova Scotia, and are little changed for New Brunswick and Newfoundland and Labrador.

National MLS® home sales activity is forecast to rise seven per cent to 492,300 units in 2010. This is a slightly larger rise in activity than previously forecast. This would make 2010 the second highest year on record for sales, putting activity below the peak reached in 2007, and slightly above the 2005 and 2006 figures. New annual records are forecast for Manitoba and Quebec in 2010.

The forecast increase in activity for 2010 reflects significant weakness in activity recorded in the first quarter of 2009.  Monthly activity in 2010 is expected to trend downward from recent heights, but the sharp drop inactivity recorded in the in the first quarter of 2009 is not expected to repeat in 2010.

New listings began declining in the third quarter of 2008, as many sellers took their home off the market pending an improvement in housing market conditions. CREA’s previous forecast suggested that average price increases in the second half of 2009 would likely result in mild a rebound in listings. In the third quarter of 2009, the number of new listings did post the first quarterly increase in more than a year, which coincided with the return of strong average price increases. New residential listings are expected to continue trending upward.

The national MLS® average home price is forecast to climb 4.2 per cent in 2009, reaching a record $317,900. This is an upward revision from the 1.5 per cent gain in CREA’s previous forecast, and reflects the high degree to which the national average price was skewed downward last year by a significant decline in activity in Canada’s priciest markets, and then upward by the rebound in activity. 

Alberta remains the only province with a forecast decline in average price in 2009 (-3.0 per cent). Average prices are forecast to rise in all other provinces, with gains ranging from a low of 1.5 per cent in British Columbia to 13.1 per cent in Newfoundland and Labrador.

Average prices are forecast to climb a further 4.7 per cent in 2010. Much of the annual increase reflects weakness in the average price in first quarter of 2009, which is not expected to repeat in 2010. Average sale prices are forecast to rise in every province in 2010.

The price trend is similar but less dramatic for the weighted national MLS® average price, which compensates for changes in provincial sales activity by taking into account provincial proportions of privately owned housing stock. The weighted national MLS® average price is forecast to climb 2.9 per cent in 2009, with a further 4.0 per cent rise in 2010. CREA previously forecast that the weighted national average price for MLS® homes sales would hold steady from 2009 to 2010.

“Pent-up demand built in late 2008 and early 2009, as many buyers moved to the sidelines pending an improved economic outlook,” said CREA President Dale Ripplinger.  “With the economic outlook having improved since then, the release of that pent-up demand will boost activity over the rest of the year and in 2010.”

“Significant weakness in activity and average prices seen in late 2008 and earlier this year is not expected to repeat in 2010, so 2010 will look a lot better by comparison,” said CREA Chief Economist Gregory Klump.  “The raised outlook for MLS® sales activity in 2010 still puts annual activity below the pre-recession peak recorded for 2007.”

CREA MLS® Residential Market Forecast:

- 30 -

For further information, please contact:

Alyson Fair, Publicist

The Canadian Real Estate Association

P: 613-237-7111 or 613-884-1460

E: afair@crea.ca

By Harley Richards - Red Deer Advocate

Published: November 16, 2009 9:14 PM
Updated: November 17, 2009 8:48 AM

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A Short Unexpected Canadian Housing Rally??

The big question on economist’s minds these days is sustainability. Will we be able to sustain the current rally in the Canadian Market and Economy? The factors that are going to answer these questions are Consumer Confidence, Economic Indicators (based on historical data) and Government Stimulus.

I attended an online forum with guest speaker Gregory Klump, he’s CREA’s (Canadian Real Estate Association) Chief Economist and he also sits on the advisory board for the Bank of Canada, so this is a man in the know.

Our current housing rally is based on consumer confidence and interest rates. One of the questions in the Bank of Canada’s monthly consumer confidence survey is, “Is now a good time to make a major purchase (Home or car)?”. That question was answered in September with the highest level of confidence since November 2007 (before we were drug into worldwide Doomageddon) as economic security was brought back into the Canadian market in a very short period.

The lowest point of this year’s consumer confidence survey was in January 2009, only nine short months prior to the September survey, and it was at its lowest point in twelve years. In this he brings up the “Dead Cat Bounce” theory (sorry cat lovers, Google it), a politically incorrect term that economists use to suggest that a dead cat will bounce off of the ground, it’s just a matter of how long it can stay airborne before dropping off or falling flat- referring to the economy and housing market.

Interest rates and consumer confidence seem to go hand in hand, as consumers take advantage of some of the lowest interest rates ever. Klump states that the government will keep interest rates (prime interest rates, this has no bearing on fixed rates) low at least until the end of spring, as they originally stated and re-iterated on October 20, because of the inflation rate (hopefully not to increase over 3%) and the high Canadian dollar.

 This proves great timing for the consumer that is buying into the current housing market, whether it is their first home, upgrading, refinancing or buying investment properties.

Klump forecasts that our current short housing rally, with regards to pricing, is here for another 6 months before leveling off again and returning to normalcy(annual increases of 5-8%) or a flat line during mid-spring as more housing supply comes onto the market and interest rates rise again during the usual spring run up. In this he suggests that home prices in Canada are currently at the lowest point we’ll see moving forward and that combined with low interest rates will increase the average home in Canada for the next 6 months.

The Economic Consensus, based on a board of economists (which is essentially a balance of opinion), is such that they’ve raised the outlook for growth -although marginally- after months of declines, this would indicate that the depth of the recession is past us. But are we out of the woods yet? Many economists are only looking to the end of 2010, some only to end of the following spring, as a lot of the stimulus funds would have been allocated and is flowing in the market, and once it ends, what will the economy look like then? Will the government be able to hand off the economy back to the private sector? And when it does, will it fall flat once the stimulus money is gone, or worse, will growth be shaped like a “W” as support is pulled out too early, opposed to the “√” symbol they are anticipating?

With job growth expected back mid next year, as companies held off hiring as they returned to profitability, a feeling of normalcy should be felt across the world. With low interest rates and consumer confidence abound, there is a sense of personal economic security felt right now and this will drive spending until interest rates climb then that sense of security will wane a little. “But what is obvious is the fact that increased consumer confidence spurs economic activity and this is a continuous circle which feeds into the housing market as a bearish medium”, states Klump.

So unless the government/private sector drives consumer confidence up, you can bring interest rates as low as you want, but people won’t buy or consume unless their own personal economic status is secure, and currently Canadians are in a very good mood and are in the market for new houses.

Jean-Guy Turcotte is a Mortgage Professional at Regional Mortgage Corporation and can be reached at 403-343-1125 or via email at jturcotte@regionalmortgage.ca and you can also follow him on twitter.

By Harley Richards - Red Deer Advocate

Published: September 04, 2009 7:34 AM

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Canadas resale housing market for July posted the largest year-over-year gain in two years, with Western homebuyers leading the way, according to statistics released Friday by The Canadian Real Estate Association. For the first time on record, sales of existing homes climbed to more than 50,000 units for July.
A total of 50,270 homes were sold last month via the Multiple Listing Service of Canadian real estate boards. This is up 18.2 per cent from the same month last year, and 3.9 per cent above the previous record for July that was set in 2007.
"The difference in the resale housing market now, compared to the beginning of the year, is night and day, and nowhere is this more evident than in the West," association president Dale Ripplinger said in a release.
"Homebuyers recognize that interest rates and prices have bottomed out, and are taking advantage of excellent affordability before prices and interest rates move higher."
Resale numbers for July were up from the same month last year in about 60 per cent of local markets.
The association said year-over-year gains in these cities contributed most to the national increase in activity:
Toronto (28 per cent).
Vancouver (90 per cent).
Montreal (19 per cent).
Calgary (22 per cent).
Edmonton (28 per cent).
Demand is rebounding sharply in some of Canada's priciest housing markets, skewing the national average price upward, with the average price rising 7.6 per cent from one year ago to $326,832.

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