MARCH JOBS REPORT IN CANADA FINALLY MIRRORS WEAK ECONOMY

The employment report had long been a lone bright spot in an economy that had sunk across the board, so the March slump is not surprising. According to today’s jobs report from Statistics Canada, employment fell by 7,200 last month, mostly in full-time positions in the service sector. Canada’s jobless rate held steady at 5.8%, close to a multi-decade low and wage growth ticked modestly higher, although, at a 2.4% year-over-year gain, it remains lower than the reading earlier this cycle.

Employment was up 290,000 over the prior six months, so it was only a matter of time that the jobs numbers would reflect the weakness in the overall economy.

Bottom Line: The Bank of Canada will remain on hold and possibly even cut interest rates if the economy slows further. There is little evidence that underlying inflation trends will rise. The headwinds of global uncertainty, weak trade, energy market vulnerability and the housing slowdown contribute to the Bank’s cautious stance.

In another trade loss, China has stopped buying Canadian canola seeds. About 40% of Canadian canola seed exports usually go to China. The Huawei dispute and potential Meng Wanzhou extradition has escalated trade tensions between Canada and China, seriously hurting Canadian farmers. As well, the US tariffs on steel and aluminum exports continue to weigh on the economy. It appears there is little prospect that the renegotiated Canada-Mexico-US trade deal will be confirmed by the US Congress this year, adding to the uncertainty.

All of this has led some to begin calling for a Bank of Canada rate cut. Higher interest rates alongside regulatory changes have already contributed to significantly slower household debt growth and housing markets.

Housing Markets Remain Soft in March in Vancouver and Toronto

According to local real estate boards reporting this week, the end of winter did not spark a flurry of home buying in Vancouver and Toronto. Fragile market conditions deteriorated further in Vancouver where policy measures introduced by all levels of government continue to keep buyers on the sidelines. Home resales fell to their lowest level since 1986 (down another 7% from February), and the benchmark price eased for a ninth-straight month (down 8.5% since the June 2018 peak). Property values in the GVA are likely to remain under intense downward pressure in the near term.

March activity was the slowest in 10 years in Toronto. Resales increased a little less than 2% month-over-month (on a preliminary seasonally-adjusted basis)—minute in comparison to the 13% month-over-month drop in February. A lack of supply could have been a factor holding back activity as new listings fell 4.5% from a year ago. This possible explanation finds some support in the fact that the benchmark price rose at a faster pace in March (2.6% y/y) than February (2.3%)—suggesting that buyers had to bid more aggressively in the face of limited supply.

This winter has been particularly hard on residential real estate markets across most of Canada. The March results published in the last couple of days in Vancouver and Toronto—as well as in Victoria, Calgary and Hamilton—offer little in the way of a meaningful rebound during the all-important early spring season. While recent declines in mortgage rates and the new first-time home buyer incentive announced in the 2019 federal budget could be catalysts for a rise in activity later this year, the stress test and other market-cooling policy actions will continue to weigh heavily on buyers.

We will have more complete data on housing mid-month when the Canadian Real Estate Association releases national and local data.

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres

INCOME QUALIFIED

There are several different ways a borrower can qualify for a mortgage when it comes to their income. One of the most common ways is known as income qualified. All of the following methods of employment income are under the income qualified umbrella:

1. Annual salary income employees
2. Full time employees working guaranteed weekly hours
3. Part time employees working guaranteed weekly hours
4. Auxiliary/On-call employees with 2-yr history at same employer
5. Commission Sales who have 2-yr history in same job/industry
6. Employees earning gratuities who have claimed over 2-yr history
7. Contract employees with 2-yr history at job/industry

There are a couple more types of employment that may fall into this category, but for the most part, these are the types of borrowers whose mortgage application is going to be done using income qualifying.

When it comes to the first 3, a borrower’s income is paid by a business in which they generally do not have any interest/ownership in. This means, an human resources representative or a supervisor can write a letter of employment stating the weekly guaranteed hours, the guaranteed hourly pay rate, the start date, and the employee’s position. The lender will then use this letter, a most recent pay stub, as well as verbally confirm the letter with the employer to verify a borrower’s income. This is how a borrower who works guaranteed hours or salary has their income verified and qualified on a mortgage application.

For numbers 4 to 7, lenders and mortgage brokers will verify and qualify a borrowers income a little differently. Because an employer does not guarantee hours or income, we need to see that there has been at least a 2-year history making the same amount. This 2-year history will usually need to be with the same employer and will need to be documented on your personal income tax returns to the Canadian Revenue Agency. The income amount on your line 150 of your T1 General Tax Returns for the past 2 years are added together and then divided by 2. The amount you get is the income you are allowed to use on your mortgage application and this is then verified by a letter of employment stating you have in fact been an employee there for more than 2 years, your are currently working there, your position, as well as a pay stub showing year-to-date income that is comparable to your 2-year average given the month you are in.

The same process would be used for those who earn over time or bonuses, claim tips, or work part time with two jobs. If you have any questions, contact a Dominion Lending Centres mortgage professional near you.

RYAN OAKE

Dominion Lending Centres – Accredited Mortgage Professional

INTEREST RATE CUT MORE LIKELY THAN HIKE IN 2019

When the Bank of Canada decided this month to keep its benchmark interest rates stable at 1.75%, it signalled the weakening economy makes it unlikely a rate increase is anywhere on the horizon.

Inflation is not where it should be, we’re not in a deflation mode right now, but inflation is under control and there’s no real need for them to raise interest rates.

Because many of the economic indicators are pointing downward, this puts the bank in a position where it can’t raise rates. This makes refinancing a more attractive option for some homeowners this year.

A lot of economists are saying that Canada is heading back into another crisis, which is an indicator that rates may drop again. This new norm will probably stay around for a little while, but rates will eventually go up. And when it goes up, people have to be obviously prepared for it.

So, for now, homeowners shouldn’t worry too much about a sudden jump in rates. While this may be a new normal, if the economy begins a turnaround, they should be ready or a bump in rates, but I don’t think it’s going to happen the next couple of years.

Usually, Canada’s economy runs almost parallel to that of our southern neighbour’s. However, the two economies seem to have gone their separate ways lately.

There’s a divergence right now that is going to occur between the Canadian and U.S. economies. When people talk about the U.S. sneezing and Canada catches a cold—this is not what’s happening right now. There’s a divergence in the interest rates. Where in the States rates are going up, in Canada, rates cannot go up because of the way our economy is actually going.

The news isn’t all positive for Canadian homeowners though. Read our recent blogs on why too many Canadians are now ineligible for mortgages and why Montrealers in particular will see their municipal tax bills rise in the coming years. If you have any questions about mortgages, contact your nearest Dominion Lending Centres mortgage professional near you.

TERRY KILAKOS

Dominion Lending Centres – Accredited Mortgage Professional

A BANK THAT MAY NOT BE FAMILIAR TO YOU

Quiz time! Who is the largest non-bank mortgage originator in Canada with over $100 billion dollars in mortgages under administration? Answer – First National Financial Corporation. If you’ve never heard of them before, don’t feel bad. The only way to get a First National mortgage is through the broker channel. They do not have any branches anywhere in Canada. How did First National become #1?
Service – First National are fast. They will accept your application, underwrite it and if approved you will get a response within 4 hours. The industry average is 24 hours. Mortgage brokers use First National for clients who have very good credit salaried income and need an approval or pre-approval quickly.

Another nice feature of First National is that they will provide pre-approvals. Many lenders do not want to spend the time and money to provide these but First Nat have always provided pre-approval that are underwritten. What this means is that an underwriter has reviewed your application and if everything in it is straight forward they foresee no problems with an approval for the specified amount of money.

Additionally, if the home you are purchasing is 5 years old or older, a First National mortgage may be for you. They offer Echelon Home System Warranty Program. This is a warranty on your electrical, heating and cooling systems as well as your plumbing. Most hot water tanks have a 6 year warranty. After that it can cost you $20 a month for a warranty program with your utility company. Echelon is free for the first 12 months and then it costs you only $17 a month. Any calls you make for repair work have a $50 call fee but everything else is covered by the warranty. Imagine your hot water tank breaking down on Sunday afternoon. In addition to paying a service call fee of probably $100 you would be paying time and a half for weekends. The tank alone could be $800+. It’s worth it.

Finally, First National introduced something new in fall 2018, a second mortgage. If you have a need for funds for renovations or something else substantial and you are part way through your First National mortgage term you can now obtain a second mortgage. No need to break your mortgage and incur penalties. When your first mortgage term ends, the second mortgage is rolled over into your first mortgage so you don’t have two different expiration dates for your mortgage. This is unheard of for a non-bank to do.
Remember, you can only get First National through the broker channel. Be sure to ask your Dominion Lending Centres mortgage professional if this would be a good mortgage for you.

DAVID COOKE

Dominion Lending Centres – Accredited Mortgage Professional

WE’RE NOT JUST A MORTGAGE COMPANY

Well, it finally happened. I was meeting with a financial advisor today and they looked at my business card and asked “Why does it say Dominion Lending Centres and not Dominion Mortgage Company?”

I have been waiting 7 years to hear this question. I had an answer all ready for today. I said “that’s because we are not just a mortgage company, we’re a lending company. This provided me with a segue into a conversation about how we do equipment leasing, factoring and cash advances.

I meet plenty of small business owners who are trying to build their business and also buy a home. In one case, the business owner had opened a machine shop. He bought $100,000 or more of equipment. As he did not have a long established business, lenders insisted that he put the loans in his own name. As a result, he had lots of business loans outstanding and was still showing little income. As he had incorporated, we were able to free up his credit by having DLC Leasing purchase the equipment and he leased it back. This provided a good tax break his accountant liked and it freed up his personal credit, which I liked.

Long story short , Dominion Lending Centres is a small/ medium business owners best friend.
We can help you get into a house where other companies see obstacles. If you are in a situation like this, contact your local Dominion Lending Centres mortgage professional and get some help.

DAVID COOKE

Dominion Lending Centres – Accredited Mortgage Professional