Canada Is Set For A Big Drop In Home Prices, According To New Reports

Latest News & Economy DAZADA DIAMOND 31 Jul

Bloomberg Economics has released data suggesting that the Canada housing bubble will eventually pop, leading to a big drop in home prices. Along with New Zealand, Canada is highly susceptible to a housing price correction in the near, but unknown future. This is due to the high price-income ratio and abnormal price-rent ratios having been a hard reality for some time now.

Policymakers may already be considering changes after the Government of Canada finally introduced a tax on foreign buyers. Foreign investors have proven to stand as major competitors to Canadian residents in need of decent, affordable housing. Many people simply can’t outbid investors from overseas. While sold condos across the country sit empty, Canadians struggle to get a grip on property in their own cities.

New Zealand has had similar problems with the housing market and has, in turn, banned all overseas purchases on housing.

The tax on foreign investors hasn’t been enough to stabilize the market, according to Bloomberg economist Nira Shah.

“While this all should help contain the housing bubble, the dashboard suggests house prices still remain substantially elevated,” said Shah in an email to the The Toronto Star.

Don’t celebrate too soon, however, because central banks will now be lowering interest rates as of today. This could mean a global rise in housing prices, which means Canada won’t be the only one with this problem. This is the first time in over a decade that the U.S. Federal Reserve has set out to cut rates, which is a move that is meant to stimulate the economy, Bloomberg reports.

The Bank of Canada’s key interest rate has been 1.75 since 2018. Economists are predicting a cut of a half a percent in the Federal Reserve.

The Canadian economy seems to be doing its own thing at the moment, instead of following the U.S. At least in the short term of things, experts do not believe that Canada will be following in the U.S. Federal Reserve’s footsteps of cutting interest rates, Bloomberg reports.

Looks like we will have to stay tuned to find out.


Credit Reports: You’ve Scored! But Are You Playing the Game?

Credit & Debt DAZADA DIAMOND 30 Jul

Credit Reports: You’ve Scored! But Are You Playing the Game?

For most people, your personal credit score and how a credit score is calculated are complete mysteries. How can you be expected to play and be successful if you aren’t even told the rules of the game? There are things borrowers can do to improve their score so they can access better mortgage products and save thousands of dollars, or qualify for their wonderful home when they otherwise might have trouble. Let’s stick handle through just some of the key things you should know about managing your credit score.

Amount owed and utilization accounts for 30% of your score. There are a lot of people that end up with high balances on their credits cards and struggle to meet the payments each month. If they manage to pay off their credit cards without seeing a mortgage broker to consolidate their debts, often the immediate response is to close the accounts. A better response is to cut up the cards and delete the numbers from your computer and devices and keep the accounts open. You want any remaining outstanding balances to be less than 75% of your total combined credit available, and if they are less than 35%, even better, because this keeps your utilization of available credit low and increases your credit score. Types of credit and the number of different credit products accounts for 10% of the score, so this is another reason you want to keep those accounts open. Cell phone providers are now reporting to the agencies that publish credit scores as well.

In some parts of the world where credit products are not well established, a borrower’s credit is evaluated based solely on how they have managed payments on their cell phone bills. It’s important to pay your cell phone bills on time; we’re all busy, so setup automatic payments to ensure a payment is not missed. My last word of advice for today is to monitor your credit score by purchasing your own credit report each year for about $25 so you know your score and to ensure the report is accurate. This will help you stay within the boundaries of the game.

There is a lot more to managing a credit score than I can get into in this short blog. If you would like to know more, contact me or your local Dominion Lending mortgage broker. We can provide advice to help you manage your credit score and put you in a better position to qualify for a mortgage with better rates. Know the rules of the game, plan ahead for your home financing, and play SMART.


Manulife: “We have a financial wellness crisis in Canada”

Latest News & Economy DAZADA DIAMOND 29 Jul

Manulife: "We have a financial wellness crisis in Canada"Keeping up with a lifestyle seen online is one of the reasons many Canadians are in debt.

A poll of 20-69 year olds with incomes of at least $40K reveals that 38% of Canadians say they are in debt because of living beyond their means and 12% directly attribute this to too many costly outings with friends or family.

The Manulife Bank survey found that one third of respondents are spending their money faster than they make it.

“Millennials are now at the age of purchasing houses and starting families, which are two areas where we are seeing expenses grow. Housing affordability remains at near-historic levels across the country and child-care costs have risen faster than inflation for Canadians,” said Rick Lunny, President and CEO, Manulife Bank. “We know we have a financial wellness crisis in Canada.”

Mortgage pain

Under 55s, women, and those with lots of debt are more likely to say that they are stressed by their financial situation.

The survey has also shown a drop in the percentage of Canadians who say they are comfortable with their mortgage payments – 85% compared to 90% in Spring 2018.

The proportion who say they are very comfortable with the payments has fallen 8 percentage points from a year ago to 28% and the share who are very comfortable with the amount owing on their mortgage is down 9 percentage points to 21%.


Will 5-year benchmark interest rate cut really help buyers?

Latest News & Economy DAZADA DIAMOND 26 Jul

Will 5-year benchmark interest rate cut really help buyers?The Bank of Canada’s five-year benchmark interest rate for mortgages is down 15 basis points to 5.19%—good news for the most disadvantaged subset of homebuyers.

“It gives first-time buyers more affordability, so they can qualify for a little more mortgage than they could before this change,” said James Laird, president of CanWise Financial and co-founder of

According to Ratehub’s calculations, at the previous benchmark rate of 5.34%, borrowers with $100,000 annual household income and a 20% down payment on a five-year fixed mortgage at 2.70%, and on a 25-year amortization, qualified for a $589,000. Now, with the benchmark rate down 15 basis points, they can afford a $597,000 home.

“This is still a marginal change,” said Laird. “A borrower earning $100,000 can qualify for an additional $8,000 mortgage, so this is not a drastic change. The stress test itself reduced affordability 20% and this is just a minor change, but it’s a change that’s still helpful and it’s moving in the right direction.”

The reason for the five-year benchmark rate cut is the bond yield, which, at a two-year nadir, impelled big banks to change their posted rates.

There has been much speculation of late that the variable interest rate could decline too. While the Bank of Canada chose to hold steady at 1.75% on July 10, some observers anticipate a rate cut before the end of the year.

“If we were only looking at domestic factors, we might think that the Bank would soon start to consider further rate hikes,” Capital Economics’ Stephen Brown said at the beginning of the month. “Economic growth is on track to outperform the Bank’s forecasts in the second quarter and core inflation has risen in recent months. But outside of Canada, trade tensions have grown, there are signs that U.S. GDP growth is slowing, and the Fed has signalled that it will soon cut rates. We suspect that the next move will be a cut.”

However, Alicia Macdonald, principal economist at the Conference Board of Canada, says that the Bank of Canada is in wait-and-see mode and that the variable rate isn’t likely to move at all in the next few months.

“The relatively rosy picture they painted of the domestic economy took a lot of talk about the interest rate decreases off the table here in Canada,” she said, adding that the tariff war engulfing the United States and China would need to escalate considerably for Canada’s central bank to make such a move.

“Unless we see those risks affect the domestic economy, we don’t think rates will decline this year.”


4 Weird Things Lenders Ask For

Mortgage Tips DAZADA DIAMOND 25 Jul

4 Weird Things Lenders Ask For

A number of times I have had people who wonder why they need to provide so much documentation when it comes to arranging a mortgage. Besides an employment letter, you are usually asked to provide a pay stub and your most recent Notice of Assessment (NOA) to prove income. “Why do they need all 3, doesn’t the employment letter satisfy this condition?” I am often asked. No, is the short answer.

A pay stub shows your current income and shows how much you have made year to date. This will also show overtime or any special allowances you receive such as a northern living allowance. This confirms or sometimes does not agree with your employment letter. The employment letter shows what you are going to make this year and your NOA shows what you made in the past. It also shows that you do not owe taxes to the government. This is important to lenders because they don’t want the government to put a lien on your property ahead of their mortgage claim on title.

Your realtor will provide an offer to purchase and sale agreement, so why do they ask for a MLS listing sheet? While the purchase agreement shows the financial agreement and what is included with the house, the MLS describes the size of the house and lot as well as the amount paid for municipal taxes and the size of each room. This allows the lender to establish whether you have a fair market price for your new home.

Finally, a lender will ask for a 90-day bank statement to show your down payment money. The reason they ask for this is due to Canadian money laundering laws which need to show the source for all funds and that you have been saving the funds over the past 3 months. If you get an inheritance, you will need to show documentation that this is the source of your sudden wealth.
Be sure to contact your local Dominion Lending Centres mortgage professional before making an offer on a home. He/She can tell you exactly what documents you will need in advance and make the home buying process go much easier.


Mortgage stress test rules get more lenient for first time

Banks & Bank of Canada DAZADA DIAMOND 23 Jul

Posted mortgage rates in Canada have inched lower, so stress test benchmark has followed suit

Canadian mortgage rates have quietly fallen this year, and so has the stress-test rate that lenders must qualify borrowers against. (Daniel Munoz/Reuters)

For the first time since the government implemented new stress test rules on Canadian home loans, the bar has been lowered — meaning a would-be homebuyer could be approved for a bigger mortgage today than they would have yesterday.

The so-called stress test, formally in place since January 2018, is a financial bar that any Canadian looking to take out a mortgage must pass to be approved for one. Regardless of what deals they may have been offered by a lender in the real world, for regulators to sign off on the loan, the borrower’s finances must be tested as though their mortgage rate is at a higher level. The idea is to save borrowers from biting off more debt than they can chew and ensure they have some financial wiggle room if rates rise.

The stress-test level is set at either two percentage points above the actual mortgage rate or whatever the average five-year posted rate is at Canada’s big banks, as calculated by the Bank of Canada — whichever is higher.

That bank rate hasn’t changed since May 2018, when it rose to 5.34 per cent. But this week, it inched down to 5.19 per cent, the first time it has decreased in almost three years.

More purchasing power

The impact of the slight lowering of that bar is to let people qualify for a bigger mortgage than they could before, even if everything else in their finances has stayed the same. It has the effect of giving them slightly more purchasing power, allowing them to fish in a slightly more expensive pond full of homes.

It’s not a huge move, by any stretch.

Rate comparison website calculates the typical borrower can now afford about 1.4 per cent more home than they could previously. Assuming a borrower had a down payment of at least 20 per cent, no other debts to speak of, and earned $100,000 a year, under the previous test level, they would have qualified for a home valued at $589,000. Today that same family can buy a house worth $597,000.

It doesn’t make their mortgage any easier to pay off. It just allows them to theoretically buy a slightly more expensive home than they would have previously been allowed to.

Samantha Brookes, CEO of broker Mortgages of Canada, says overall, the stress test has put a chill on the market, but she doubts that this week’s move will make a major dent in its impact.

“It allows someone purchasing to buy a little bit more but it’s not that significant,” she said. “Consumers are in this wait-and-see pattern — it’s still difficult to get into the market because that stress test is there.”

And the tiny amount of extra wiggle room that this week’s move may make the dollars and cents add up a little better on paper, but the real impact may be all in our heads, says Nick Kyprianou, president of RiverRock Mortgage Investment Corporation, a Toronto-based alternative mortgage lender.

Kyprianou is somewhat of a rarity in that he makes his money in real estate, but isn’t among those who blame the implementation of the stress test in 2018 for taking away the punch bowl and ending a real estate party in full swing.

He may have a bias in that the stress test made his business busier, as people shut out of traditional lenders by the new rules flocked to alternative lenders. “But it was a reasonable thing to do,” he says. “As a homeowner and a citizen it wasn’t the wrong decision — things were irrational.”

Kyprianou says the stress testing level moving almost imperceptibly lower is likely to help the market just by instilling confidence, because it’s not just the theoretical testing level that’s lower — actual mortgage rates are falling too.

Fixed mortgage rates are priced on what’s happening in the bond market, which has been signalling for months that it expects cheaper lending rates to come.

The U.S. central bank could cut its benchmark interest rate as soon as the end of this month, and while Canada is expected to stand pat for a while, the Bank of Canada is not immune to the global forces that may push rates down even lower.

As long as house prices don’t crater, rates in the real world moving lower will have a much bigger impact than this week’s tiny wobble in the stress test, Kyprianou says.

“This is a psychological game. If people feel confident they’ll get back in the market.”


Non-bank lenders taking a bigger bite out of Canada’s mortgage market, CMHC says

Latest News & Economy DAZADA DIAMOND 19 Jul

An increasing number of homeowners turned to alternative lenders last year, while new mortgage growth reached its slowest pace in more than a quarter of a century amid government interventions aimed at cooling the housing market, according to a new report.

Alternative lenders, which take on clients with riskier profiles for shorter terms at higher interest rates, held one per cent of Canadian mortgages last year, according to a first-of-its kind report from the Canada Mortgage and Housing Corporation.

There were 200 to 300 active alternative lenders in Canada last year holding $13 billion to $14 billion of outstanding Canadian mortgages. That’s up from $11 billion to $12 billion the year prior and $8 billion to $10 billion in 2016.

The data suggests that “their share in this space is growing,” said Tania Bourassa-Ochoa, a specialist in housing research with CMHC.

Loans from alternative lenders typically have terms between six months and two years. In 2018, they offered interest rates between 7.3 and 11 per cent, with an average of 8.99 per cent. Banks, by contrast, offered 3.3 per cent to 5.4 per cent rates on mortgage loans with terms that generally last several years.

People who turn to alternative lenders have riskier profiles, according to the report. Their clientele includes people who are self-employed, investors carrying more than one property, and borrowers who need short-term cash due to poor credit history, health problems, divorce or other issues.

Such mortgages have higher delinquency rates than those given by other lenders. In the third quarter of 2018, the delinquency rate for alternative lenders was 1.93 per cent, according to the report. Mortgage finance companies, credit unions, caisses populaires and banks all reported delinquency rates at 0.25 per cent or lower during that same time.

“It gives me great concern,” said Laurie Campbell, CEO of the non-profit agency Credit Canada, of the rise in alternative lending.

The short terms and high interest rates put people in a vulnerable position, she said, especially if interest rates are rising. It doesn’t help that many of these borrowers are people who could not qualify for a bank mortgage, making them higher risk, she said.

They could get into a situation where rates are higher when their term is up and not even alternative lenders will renew their mortgage, she said, forcing them to sell their property.

She suggests people desperate to get into the housing market who fail to be approved by a traditional lender determine what prevents them for qualifying, like a low credit score, and whether it’s possible to fix it going forward.

If they do decide to sign a mortgage with an alternative lender, they need to recognize that it’s going to cost them a lot more over the long run, she said.

An April report from CIBC’s deputy chief economist raised concerns over the rise in alternative lenders in Ontario. In 2018, alternative lenders made up nearly 12 per cent of transactions in Ontario and about 15 per cent in Greater Toronto, according to the report. That represented a roughly two-per-cent rise since Ottawa’s new mortgage stress test for traditional lenders came into play.

Alternative lenders account for close to seven per cent of the market based on dollars, since average loan size is about half the size of bank loans.

Benjamin Tal said at the time that alternative lending is part of a normally functioning mortgage market, but a fast-growing segment is not.

A one-per cent market share is still a relatively small figure, said Bourassa-Ochoa.

“We’re going to have to monitor how these numbers are changing in time in order to really see and understand more clearly if there is a vulnerability and what it is.”

Last year also saw the slowest year-over-year growth in total mortgage debt in more than 25 years, according to the report. Throughout 2018, mortgage debt grew by between 3.4 per cent and 5.2 per cent with the pace maintaining at 3.4 per cent in the first quarter of this year. That’s down from between 5.2 per cent and 6.2 per cent in 2017 and 6.1 to 6.5 per cent in 2016.

That decline comes from tougher government lending rules, higher borrowing costs and other factors.

This is the first report of its kind by the CMHC, which plans to produce it on an annual basis and provide quarterly updates.

“This report is really looking at filling so many missing pieces of the residential mortgage landscape,” said Bourassa-Ochoa, adding businesses, policy makers and others can use the data to make more informed decisions.

CMHC’s report comes on the heels of a similar effort by Statistics Canada. The agency last week released its first set of data from a survey of non-bank mortgage lenders.

It noted this data was previously “only collected by some organizations at the provincial level, for certain industries and with varying levels of detail.”


What’s included in a home purchase agreement

Down Payment & Buying DAZADA DIAMOND 18 Jul

What’s included in a home purchase agreement

While a home purchase agreement may seem simple and straight forward, there are many differences that you can encounter that can be a big surprise to first-time homebuyers. While you expect the date of possession and the full purchase price to be outlined in the agreement, there are items that you may not be aware should be included.

New builds vs existing homes

If you are buying a newly constructed home, there are quite a few differences between what you get in an existing home.
Legal fees – often home builders will include the legal fees in the purchase price. You should be aware that the law firm that will provide the service is the builder’s lawyer. Should a legal dispute develop, they will take the side of the builder and you will have to find your own independent legal counsel. In fact, if you can afford it, you should consider getting your own lawyer. The $1,200 savings could end up costing you more in the long run.
You should be aware that the show home that you have visited usually has numerous upgrades. I know that when I purchased my first new home I assumed that the bathroom rough-ins in the basement were standard, only to find out later that this was an upgrade. Retro fitting plumbing pipes is a costly venture.
You should also be aware that landscaping, fences and window coverings are not usually not included in the purchase price. Double check to see if the triple-pane windows on the show home are standard or an upgrade. Hardwood floors and basement development are usually an upgrade as well.

Existing homes

When you are buying an existing home, you will find that the window coverings, fences and landscaping are included in most cases. The window coverings should be included in the offer to purchase contract.
Something that may look like it’s supposed to be there but the seller may want to take with them is the hot tub and storage shed. Don’t assume that these items are included. The legal fees are never covered in an existing home sale.

Finally, from a mortgage standpoint, you should be aware that if you are purchasing an acreage or a large property with several outbuildings, your mortgage lender will cover the cost of the home plus one out building and up to three acres of land. If there’s a garage , barn and workshop usually the garage will be included in what the mortgage company will cover but not the smaller out buildings. Check with your Dominion Lending Centres mortgage professional before you make an offer on a property like this.


Foreclosure, Bankruptcy, Consumer Proposal & Credit Counseling

Down Payment & Buying DAZADA DIAMOND 17 Jul

Foreclosure, Bankruptcy, Consumer Proposal & Credit Counseling

The Canadian Bankers Association’s latest report on mortgage delinquency shows that Saskatchewan has the highest per capita of all the provinces. The national average shows that .24% of home owners are having difficulty paying their mortgage. Saskatchewan is more than triple that at .80% with next in line Atlantic Canada at .51% and then Alberta at .46%. At first glance these numbers seem relatively small until you note the fine print that “delinquency” in this report only represents those homeowners that are more than 3 months behind.

I thought that I would take the time to go over the mortgage ramifications of foreclosure, bankruptcy, consumer proposal and credit counseling.

This is when the mortgage has gone unpaid to the point that the bank is forced to take back the security for the mortgage which is the home. First of all, the bank doesn’t want to have to do this. Non-payment of the mortgage for an extended period of time forces their hand. The foreclosure process is different in every province. Saskatchewan has the most difficult foreclosure process for the bank and gives the homeowner many chances to catch up and stop it. This process can take months to work through for the bank to take possession of the home to be able to sell it to recover their losses. The long-term effect on a client that goes through foreclosure is permanent. A record of the foreclosure is placed on each clients’ credit report. Unlike a bankruptcy or consumer proposal that are eventually removed, the foreclosure stays on their credit report for life. What that will mean is that when they want to eventually purchase a home again, they will more than likely require at least 20% down payment.

Bankruptcy & Consumer Proposal
Both bankruptcy and consumer proposal are administered through a licensed insolvency trustee. Typically, every creditor that you have debt with will participate in the process. This includes student loans and arrears with Canada Revenue Agency.
If you have gone through either of these insolvency actions, the mortgage industry sees them as them as the same thing. What is most important after either of those is to get back up on the credit horse and walk before you run. Canadians that swear off debt of any kind after insolvency are better known as lifelong renters. Never having a credit card or loan again is certainly fine until you apply for a mortgage to buy a home. Banks and mortgage lenders want to see that you can walk with small amounts of credit before running with hundreds of thousands in a mortgage. Once discharged from either a bankruptcy or consumer proposal obtaining a credit card should be your very first step. The next thing to do is advise both Canadian credit reporting agencies that you were discharged. You may be required to send documents related to the insolvency. It is a good idea to keep all your paper work from this process in a safe place for at least 10 years.

Credit Counseling
Credit counselling could be a viable option for those that are keeping up with their debt payments but need help in making a household budget to get out of debt faster. For those that have fallen behind on their debts and 1 or more have gone into collection status, credit counselling may not be the answer. There are 2 distinct differences between working with a credit counselor and a licensed insolvency trustee.
1. Student loans and debts to Canada Revenue Agency cannot be addressed within credit counseling.
2. If the credit counseling requires debt negotiations and/or payment arrangements, some of your creditors may decline to participate. This leaves debts outside of the credit counseling arrangement that you must address on your own. It’s a little like having 2 flat tires on your car and only 1 spare. The spare may work well to fix one flat but your car still isn’t roadworthy.


What is a mortgage “refinance” and how does it affect me?

Down Payment & Buying DAZADA DIAMOND 16 Jul

What is a mortgage “refinance” and how does it affect me?

Refinancing a Home is one of those things where people understand what it is but have trouble explaining How it works. To put it simply, refinancing your Home allows you to access the equity you have built up, by changing the mortgage amount.

Let’s say you bought a $300,000 condo and you paid 20% ($60,000) as your down payment and had a mortgage of $240,000. Over the next 4 years, you continue making payments to pay down the $240,000 you owed and now that amount is only $230,000. Your mortgage is up for renewal in one year however, you want to do some renovations and you need to access the equity in your Home—this is where a refinance could come into play.

What this means is you will get an appraisal, or in simpler terms an evaluation, of your current Home and submit that information to a lender. Let’s say your $300,000 condo is now worth $350,000 and you owe $230,000. You have built up an additional $60,000 in equity ($350,000 – $230,000 owing – $60,000 initial down payment= $60,000). You have a mortgage of $230,000 on a Home worth $350,000, therefore your equity in the Home is $120,000.

To access that $120,000, you can refinance your mortgage. So let’s say you want to go back and take $50,000 from the $120,000 you have built up. Your new mortgage would go from $230,000 to $280,000, and that $50,000 will be transferred from the lender to you. You are essentially borrowing money from the lender while also adding money back on top of your mortgage.

This is why people will refinance their Home to make larger purchases. The bank will lend you the money now and get it back in the future, plus interest, because it is being added to the mortgage.

This is just one way people are able to use their Home to access cash. Other ways people can do this, especially if they are looking to complete renovations, is through home equity, lines of credit, collateral charges and purchase plus mortgages.

Knowing this information before you buy can be extremely beneficial. That is why it is important to work with a qualified Home mortgage specialist. Contact a Dominion Lending Centres mortgage professional today for more questions about refinancing!