DLC BLOG

Is your Line of Credit Killing your Mortgage Application? Some of the last round of changes from the government regarding qualifying for a mortgage were that if you have a balance on your unsecured line of credit, then to qualify for mortgage the lenders require that we use a 3% payment of the balance of the line of credit.

Simple math is, if you owe $10,000 we have to use $300 as your monthly payment regardless of what the bank requires as a minimum. Given that the banks hand out lines of credit on a regular basis it is not uncommon for us to see $50,000 lines of credit with balances in the $40,000 range. That amount then means we have to use $1,200 a month as a payment even though the bank may require considerably less.

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DLC BLOG
5 Tips on how to get out of debt and into your own home

5 Tips on how to get out of debt and into your own home. To get out of debt, you need a plan, and you need to execute that plan. That’s why I’ve created this simple, five-step, get-out-of-debt checklist that can help you leave that financial burden behind you.

As you work on your plan, you’ll need to make all necessary adjustments to your budget along the way so you don’t overspend and slide back into debt. Plus, if you don’t have an emergency fund, consider setting some money aside in savings beforehand.

Keep this checklist someplace where you’ll see it often (like your refrigerator door), and make it your goal to check a task off the list each day (or each week), depending on how quickly you want to become debt-free.

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DLC BLOG
The Right Kind of Debt

The Right Kind of Debt. Put yourself in a bank or lender’s shoes. Someone comes into your branch and asks you to politely loan them $300,000. You are a big bank, but $300,000 is still a lot of money. How do you ensure this person is going to pay back the money you loan them, on time, and in the right amount? Look at their record for borrowing other people’s money.

This is why taking on different kinds of debt when you are young is a good thing, but it must be within reason.

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DLC BLOG

7 Questions to Help You Decide if You Should Pursue a HELOC, Refinance or Second Mortgage

HELOC, Refinance or Second/Third Mortgages? Which one should you choose to go with? If you have decided to tap into the equity in your home, the three can seem to be interchangeable at times and for many consumers can be a difficult decision on which one to select. We have laid out seven questions to guide you through the decision, for your unique situation. We’ve also broken this down into three categories, Equity, Payment and Availability.

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DLC BLOG
Debt Service Ability. A renewed lender focus
Debt Service Ability. A renewed lender focusDebt Service Ability. A renewed lender focus it seems. As interest rates firm, valuations are impacted, and cap rates begin to firm. What about Debt Service Ability?

It is becoming more apparent that property income, and more specifically net operating income available to service debt, has a significant and growing influence on the amount of debt available to a commercial property owner.

This is increasingly evident with lender attitudes as well. Cash is King to your commercial lender, notwithstanding the relative amount of leverage on your asset.

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DLC BLOG
Don’t Forget the Closing Costs When You Purchase a Home

Don’t Forget the Closing Costs When You Purchase a HomeThe purchase price you negotiate when buying or selling a home is just one part of the total cost for buying a home. In addition to the purchase price there are several other fees – known as closing costs – all of which you need to factor in to your purchase price.

Closing costs tend to be hidden costs when buying a home. It’s not a set number, but a compilation of various administrative, legal fees and other one-time expenses associated with the purchase of a home that are due on the completion date.

These costs can add up, so you’ll need to factor these costs into your cash-on-hand budget.

Many first-time home buyers under estimate the amount of cash they will need for closing costs. Typically, you’ll want to budget between 1.5% and 4% of the purchase price of a resale home to cover closing costs.

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DLC BLOG
Reverse Mortgage – Common Uses

Reverse Mortgage – Common UsesHere is the final blog in the REVERSE MORTGAGE series. If you missed the first two, you read them here and here:

Eliminate mortgage payment – Retired, or wanting to retire, but still have a mortgage and mortgage payment to make? Use a reverse mortgage to pay off the traditional mortgage, getting rid of that monthly payment.

Unexpected expenses – Home repairs, helping children, vehicle repairs, health care/home care, etc. A reverse mortgage gives you access to your tax-free equity whenever you need it. The equity can be used to pay for those expenses without the burden of adding a new monthly payment into your life.

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Dr. Sherry Cooper – Chief Economist, Dominion Lending Centres
The Spring Housing Market Continues To Be Weak

As we said last month, April is usually the start of a spring housing market ramp-up, but this year the new mortgage stress test and rising mortgage rates have continued to be a negative factor. Those expecting an early-stage pick-up marking an end to the payback for sales pulled forward into the fourth quarter of last year have been sorely disappointed. With another month of data released by the Canadian Real Estate Association (CREA) on Friday, it is evident that the disappointing housing picture continued in May. There is no indication of any real rebound in home resale activity through May.

National home sales via the Canadian MLS Systems remained little changed from April to May. Having slipped 0.1% lower, it marked the lowest level for national sales activity in more than five years. Slightly more than half of all local housing markets reported fewer sales in May compared to April, led by the Okanagan region, Chilliwack and the Fraser Valley, together with the Durham region of the Greater Toronto Area (GTA) and Quebec City. Declines in activity were offset by gains in Calgary, Thunder Bay, Brantford, London and St. Thomas, Oakville-Milton and the Quinte Region west of Kingston. A small increase in GTA sales also supported the national tally.

On a positive note, sales have stabilized suggesting that buyers could be adjusting to the impact of tighter mortgage rules and higher interest rates. After all, sales did climb 1.6% in Toronto, after falling to recession-era lows in April.

Still, CREA cut its 2018 sales forecast to 459,500 nationwide, which would represent an 11% decline from the 2017 pace. In March, the group had predicted a 7.1% slide.

Existing home sales in Canada remain stuck at a six-year low of 436,500 units on a seasonally adjusted annualized basis in May, representing the fifth consecutive monthly decline. The stress test, along with higher mortgage rates and new market-cooling measures in British Columbia continue to keep homebuyers on the sidelines. Not even a material rise in new listings (up 5.1%) enticed them back into play. Activity was at a virtual standstill last month in all three of Canada’s largest markets— Vancouver, Toronto and Montreal.

Actual (not seasonally adjusted) activity was down 16.2% compared to May 2017 and reached a seven-year low for the month. It also stood 5.5% below the 10-year average for the month of May. Activity came in below year-ago levels in about 80% of all local markets, led overwhelmingly by those in and around the Lower Mainland of British Columbia and the Greater Golden Horseshoe (GGH) region in Ontario.

“This year’s new stress-test became even more restrictive in May since the interest rate used to qualify mortgage applications rose early in the month,” said, Gregory Klump, CREA’s Chief Economist. “Movements in the stress test interest rate are beyond the control of policymakers. Further increases in the rate could weigh on home sales activity at a time when Canadian economic growth is facing headwinds from U.S. trade policy frictions.”

New Listings
The number of newly listed homes rose 5.1% in May but remained below year-ago levels. New listings rose in about three-quarters of all local markets, led by Edmonton, Calgary, Montreal, Quebec City, Ottawa and the GTA.
With new listings up and sales virtually unchanged, the national sales-to-new listings ratio eased to 50.6% in May compared to 53.2% in April and stayed within short reach of the long-term average of 53.4%. Based on a comparison of the sales-to-new listings ratio with its long-term average, about two-thirds of all local markets were in balanced market territory in May 2018. There were 5.7 months of inventory on a national basis at the end of May 2018. While this marks a three-year high for the measure, it remains near the long-term average of 5.2 months.

Home Prices
On a national basis, the Aggregate Composite MLS Home Price Index (HPI) rose only 1.0% y/y (year-over-year) in May 2018, marking the 13th consecutive month of decelerating y/y gains. It was also the smallest annual increase since September 2009.
Decelerating year-over-year home price gains largely reflect trends among GGH housing markets tracked by the index. While home prices in the region have stabilized and begun trending higher on a monthly basis, rapid price gains recorded one year ago have contributed to deteriorating y/y price comparisons. If recent trends remain intact, year-over-year comparisons will likely improve in the months ahead.
Condo apartment units again posted the most substantial y/y price gains in May(+12.7%), followed by townhouse/row units (+4.9%). By contrast, one-storey and two-storey single-family home prices were down (-1.5% and -4.7% y/y respectively), very much in line with what we saw last month.

Benchmark home prices in May were up from year-ago levels in 8 of the 15 markets tracked by the index (see Table below).
Composite benchmark home prices in the Lower Mainland of British Columbia continue to trend upward after having dipped briefly in the second half of 2016 (Greater Vancouver (GVA): +11.5% y/y; Fraser Valley: +20.6% y/y). Apartment and townhouse/row units have been mainly driving this regional trend while single-family home prices in the GVA have stabilized. In the Fraser Valley, single-family home prices have also started rising.
Benchmark home prices were up by 11.5% on a y/y basis in Victoria and by 18.1% elsewhere on Vancouver Island.

Within the GGH region, price gains have slowed considerably on a y/y basis but remain above year-ago levels in Guelph (+3.8%). By contrast, home prices in the GTA, Oakville-Milton and Barrie were down from where they stood one year earlier (GTA: -5.4% y/y; Oakville-Milton: -5.9% y/y; Barrie and District: -6.3% y/y). This reflects rapid price growth recorded one year ago and masks recent month-over-month price gains in these markets.

Calgary and Edmonton benchmark home prices were down slightly on a y/y basis in May (Calgary: -0.5% y/y; Edmonton: -0.9% y/y), while prices in Regina and Saskatoon were down more noticeably from year-ago levels (-6.2% y/y and -2.7% y/y, respectively).
Benchmark home prices rose by 8.2% y/y in Ottawa (led by a 9.5% increase in two-storey single-family home prices), by 6.7% in Greater Montreal (driven by a 7.3% increase in two-storey single-family home prices) and by 4.3% in Greater Moncton (led by a 4.8% increase in townhouse/row unit prices).

Bottom Line
Housing markets continue to adjust to regulatory and government tightening as well as to higher mortgage rates. The speculative frenzy has cooled, and multiple bidding situations are no longer commonplace in Toronto and surrounding areas. Home prices in the detached single-family space will remain soft for some time, and residential markets are now balanced or favour buyers across the country. The hottest sector remains condos where buyers face limited supply.

Owing to the housing slowdown, a general slowing in the Canadian economy and significant trade uncertainty, the Bank of Canada has taken a very cautious stance. However, at their last meeting, monetary policymakers have signalled that a rate hike is coming, likely when they next meet on July 11.
Five-year fixed mortgage rates have already risen roughly 110 basis points, while rates for new variable mortgages rose by close to 40 basis points. Since the implementation of new mortgage standards, nonprice lending conditions for mortgages and home equity lines of credit have also tightened.

In the Bank of Canada’s recently released Financial System Review, the central bank analysts observed that the updated Guideline B-20, which took effect at the beginning of this year, “is dampening credit growth and improving the quality of new mortgage lending, especially in regions with the highest house prices. For example, because of the new mortgage interest rate stress test, the size of a 5-year, fixed-rate mortgage with a 25-year amortization that a median-income borrower in Canada can qualify for dropped by about $82,000 to $373,000. The stress test will have more significant effects in markets such as the Greater Toronto Area (GTA) and Greater Vancouver Area (GVA), where house prices are higher relative to incomes and low-ratio mortgages are more common.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

DLC BLOG
The 5 Mortgage Elements- Decisions You Need to Make Before You Sign!

The 5 Mortgage Elements- Decisions You Need to Make Before You Sign!Before you buy a home there are a couple things you need to figure out first. One of the very first decisions you need to make is whether you want to work with a mortgage broker who is independent from the bank, or if you prefer, work with a financial representative from a specific bank. Next, you want to find a realtor that best understands your needs and wants.

From there, you and your realtor go through the laundry list of pros and cons as they relate to; type of neighborhood, type of building whether detached or attached, one, two, or three bedrooms, strata operated, resale potential, upgrades needed, local amenities, previous owners, the list goes on. Once you get an idea of the homes that tick the most boxes possible, writing an offer to purchase comes quick.

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Dr. Sherry Cooper – Chief Economist, Dominion Lending Centres
Canada’s May Job Loss in Manufacturing and Construction

Statistics Canada announced this morning that Canada’s employment was little changed in May, and the jobless rate remained at a low 5.8% for the fourth consecutive month. The headlines, however, highlighted the modest 7,500 job losses last month on the heels of a 1,100 job loss in April. The job declines are small in a country that has added 238,200 new positions over the past year.

In the private sector, the job losses were focused in manufacturing and construction. Manufacturing has been weak all year no doubt dampened by the continuing uncertainty surrounding NAFTA. The latest trade battles have postponed any NAFTA decisions until 2019. Not only has the U.S. imposed tariffs on shipments of Canadian steel and aluminum, but Trump is now pushing for separate one-on-one trade negotiations with Canada and Mexico.

This divide-and-conquer strategy will only prolong the uncertainty, and it is not clear that the 24-year old NAFTA deal will endure. Reciprocal tariffs by Canada, Mexico and many other U.S. trade partners will continue to disrupt economic activity worldwide.

Construction employment fell for the second consecutive month, decreasing 13,000 in May. Construction jobs are little changed from a year earlier, with recent declines offsetting gains observed in late 2017. Housing activity has slowed markedly in the past 12 months in response to government and regulatory measures to slow residential activity.

Much of the decline in jobs can be chalked up to B.C., where employment fell by 12,400 in May. Mixed performances were observed elsewhere. But B.C. has exceptionally tight labour markets where the unemployment rate has fallen to 4.8%, the lowest in the country. Job losses there might well reflect an inability to find appropriate workers (see chart below).

The jobs market remains very tight in Canada as an increasing number of employers report job vacancies and difficulty in finding experienced workers in some sectors. Labour shortages and provincial hikes in minimum wages have boosted income. Average hourly wages for permanent workers rose 3.9% from a year earlier, matching a pace last seen in April 2009, and the number of hours worked climbed by 2%. Wage gains hitting a nine-year high was undoubtedly helped by Quebec’s minimum wage increase, but the broader story of price pressures remains–12 of 16 major industries saw wage growth above the 3% mark in May, which also marked the twelfth straight month of real wage gains.

Industrial company capacity utilization rose to 86.1% in the first quarter, the highest since 2006, Statistics Canada said in a separate report. It was the seventh consecutive gain.

The Bank of Canada has said it is closely monitoring income growth as it considers whether to raise interest rates again next month. The job market is expected to remain strong this year with unemployment holding close to record lows despite trade uncertainty and weaker housing. Governor Poloz on Thursday said there are signs of “solid” expansion.

The Bank of Canada is expected to hike interest rates when the Governing Council meets again in July, adding to the three rate hikes over the past year.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca