Canadian Homebuyers Trying To Beat Rate Hikes.

Today the Canadian Real Estate Association (CREA) released statistics showing national existing-home sales rose 0.6% in November following the whopping 8.6% surge the month before. Sales could have been higher had it not been for the limited supply of homes for sale. Homebuyers are anxious to finalize purchases before the Bank of Canada hikes interest rates next year.Across the country, sales gains in Calgary, Edmonton, the B.C. interior, Regina and Saskatoon offset declines in activity in the GTA and Montreal.

The actual (not seasonally adjusted) number of transactions in November 2021 was firm historically, edging down a scant 0.7% on a year-over-year basis, missing the 2020 record for that month by just a few hundred transactions.

On a year-to-date basis, some 630,634 residential properties have traded hands via Canadian MLS® Systems between January and November 2021, far surpassing the annual record 552,423 sales for all of 2020.

“The fact is that the supply issues we faced going into 2020, which became much worse heading into 2021, are even tighter as we move into 2022. Interest rate hikes will make it even harder for new entrants to break into the market next year, even though activity may remain robust as existing owners continue to move around in response to all of the changes to our lives since COVID showed up on the scene. As such, the issue of inequality in the housing space will remain top of mind. One wildcard will be what policymakers decide to do with the national mortgage stress test, which could act as a kind of cushion against rising rates for young and/or first-time buyers. It could also make things that much harder for them,” said Shaun Cathcart, CREA’s Senior Economist.

New Listings

The number of newly listed homes rose by 3.3% in November compared to October, driven by gains in a little over half of local markets, including the GTA, Lower Mainland, Montreal, and many markets in Ontario’s Greater Golden Horseshoe.

With new listings up by more than sales in November, the sales-to-new listings ratio eased a bit to 77% compared to 79.1% in October. The long-term average for the national sales-to-new listings ratio is 54.9%.

About two-thirds of local markets were seller’s markets based on the sales-to-new listings ratio being more than one standard deviation above its long-term mean. The other one-third of local markets were in balanced market territory.

There were just 1.8 months of inventory on a national basis at the end of November 2021, tied with March 2021 for the lowest level ever recorded. The long-term average for this measure is more than 5 months.

Home Prices

In line with some of the tightest market conditions ever recorded, the Aggregate Composite MLS® Home Price Index (MLS® HPI) was up another 2.7% on a month-over-month basis in November 2021.
The non-seasonally adjusted Aggregate Composite MLS® HPI was up by a record 25.3% year-over-year in November.

Year-over-year price growth has crept back up to nearly 25% in B.C., though it remains lower in Vancouver, on par with the provincial number in Victoria, and higher in other parts of the province.

Year-over-year price gains are still in the mid-to-high single digits in Alberta and Saskatchewan, while gains have risen to about 13% in Manitoba.

Ontario saw year-over-year price growth hit 30% in November, with the GTA continuing to surge ahead after trailing most other parts of the province for most of the pandemic.

Greater Montreal’s year-over-year price growth remains at a little over 20%, while Quebec City was only about half that.

Price growth is running above 30% in New Brunswick (higher in Greater Moncton, lower in Fredericton and Saint John), while Newfoundland and Labrador is now at 10% year-over-year (lower in St. John’s).

Bottom Line–Lots of News Today

Canada continues to contend with one of the developed world’s most severe housing shortages; as our borders open to a resurgence of immigration, excess demand for housing will mount. The impediments to a rapid rise in housing supply, both for rent and purchase, are primarily in the planning and approvals process at the municipal and provincial levels. Liberal Party election promises do not address these issues.

Inflation pressures are mounting everywhere. The US posted a year-over-year inflation rate for November at 6.8%, up from 6.2% posted the month before. This undoubtedly led the US Federal Reserve to issue a hawkish statement today, intensifying their battle against inflation. They announced that they will double the pace at which it’s scaling back purchases of Treasuries and mortgage-backed securities to $30 billion a month, putting it on track to conclude the program in early 2022, rather than mid-year as initially planned.

Projections published alongside the statement showed officials expect three quarter-point increases in the benchmark federal funds rate will be appropriate next year, according to the median estimate, after holding borrowing costs near zero since March 2020.

According to Bloomberg News, “The faster pullback puts Powell in a position to raise rates earlier than previously anticipated to counter price pressures if necessary, even as the pandemic poses an ongoing challenge to the economic recovery. The Fed flagged concerns over the new omicron strain, saying that risks to the economic outlook remain, including from new variants of the virus.”

On more positive news, Canada’s inflation rate held steady at 4.7% y/y in November, well below the pace in the US. Excluding food and energy products, CPI ticked slightly lower to 3.1% from a year ago in November, or 2.7% on an annualized seasonally adjusted basis relative to the pre-shock February 2020 level. Roughly half of that 2.7% can still be attributed to rising expenses related to home-owning and car purchase or leasing. But the breadth of inflation pressure has also widened, with 58% of the consumer basket seeing faster-than-2% annualized growth in November from pre-pandemic (2019) levels on average over the last three months. That compares to 47% in February 2020. The broadening is expected to carry on in 2022 as rising input, transport and labour expenses continue to flow through supply chains for a wider swath of goods and services. Further disruptions to supply chains and energy markets from Omicron and the BC flood later in November are expected to add to price uncertainties in the near term.

In a speech today, Governor Tiff Macklem of the Bank of Canada assured the public that the Bank of Canada would remain the country’s number-one inflation fighter. Macklem clarified that flexibility in their new mandate won’t apply in situations — like now — when inflation is considerably above target.

At a press conference after the speech, Macklem noted he wasn’t comfortable with current elevated levels of inflation and the “time is getting closer” for policymakers to move away from the forward guidance. Markets are pricing in five interest rate hikes next year by the Bank of Canada.

Published DLC’s Chief Economist Dr Sherry Cooper

Refinancing Your Home.

One of the best parts about life is that it is ever-changing. This is one of the reasons that mortgages are available on short-term contracts (such as the standard 5-year) so that you can adjust your mortgage over time to best suit your needs. However, in some cases you cannot wait until the term is up. In fact, roughly six out of ten homeowners with the standard five-year fixed rate mortgage break their terms within three years.

There are a variety of reasons to refinance your mortgage such as wanting to leverage large increases in property value or get equity out of the home for renovations. In some cases, you may be unable to wait until the term is up due to life events such as divorce, a new relationship, kids going off to college or needing to consolidate debt.

Before you refinance, it is important to understand that if you do this during your term you will be breaking your mortgage agreement and there are penalties that come with that. If at all possible, it is best to wait until the end of the mortgage term before refinancing.

If you cannot wait, it is important to understand how your lender is going to calculate the penalty if you break a fixed-rate mortgage. Canada’s big banks calculate mortgage penalties based on the discount you were given from the posted rate at the time that you signed your mortgage agreement. The bank firstly takes their new posted rate for whatever time you have left in your mortgage – if you break a five year contract on year three, this would be two years – and apply the same discount they first gave you. The difference between the two shows them the amount of interest they would lose for the rest of the term based on your current balance. This is what then becomes the penalty for breaking your fixed-year term and, in many cases, can be quite hefty. Other lenders such as credit unions and monolines will use the interest rate differential or a flat three-month interest penalty.

Beyond the penalties, there are a few other points to consider before refinancing:

• You can tap into 80 per cent of the value of your home
• You cannot qualify for default insurance which can limit your lender choice
• You would have to re-qualify under the current rates and rules – including passing the “stress test” again

So what can you do? There is an option to sign a fixed rate for a shorter term, such as three years, or you can also consider a variable rate as the penalties for breaking these mortgages are much lower.

Talking to a mortgage broker about refinancing can provide you access to even greater rates and mortgage plans to best suit your needs and what you are trying to accomplish through your refinancing strategy.

Benefits of Refinancing

Regardless of why you are looking to refinance, it can come with a host of great benefits when done properly!

1.   A Lower Interest Rate

Depending on where you are in your mortgage term, you could refinance to get a better rate – especially when done through a mortgage broker. On average, a mortgage broker has access to 90 lenders and is able to find you the best rate versus traditional banks which only have access to their own rate.

2.   Consolidating Your Debt

When it comes to debt, there are many different types from credit cards to lines of credit to school loans to mortgages. However, many types of consumer debt have much higher interest rates than those you would pay on a mortgage. Refinancing can free up cash to help you pay out these debts. While it may increase your mortgage, your overall payments could be far lower and would be a single payment versus multiple sources. Keep in mind, you need at least 20 percent equity in your home to qualify.

3.   Modifying Your Mortgage

The beauty of life is that it is ever-changing and sometimes you need to pay off your mortgage faster or change your mortgage type. Maybe you came into some extra money and want to put it towards your mortgage or maybe you are weary of the market and want to lock in at a fixed-rate for security. It is always best to do this when your mortgage term is up, but talk to a mortgage specialist about potential penalties if waiting is not possible.

4.   Utilize Your Home Equity
One of the biggest reasons to buy in the first place is to build up equity in your home. Consider your home equity as the difference between your property’s market value and the balance of your mortgage. If you need funds, you can refinance your mortgage to access up to 80% of your home’s appraised value in cash!

If you are considering refinancing your home, or wondering if it is the best option for you, don’t hesitate to reach out to a Dominion Lending Centres Mortgage Professional today for expert advice!

Written by My DLC Marketing Team

How to Save with a Variable Mortgage.

When it comes to mortgages, the age-old question remains: “Should I go with a variable or fixed-rate?”. To make an informed decision, it is important to look at the type of buyer and the historical trends.

When it comes to variable versus fixed-rate, it is important to understand what these mortgages are based off of. Fixed mortgages are so named as they are based on a fixed interest rate that is set for the duration of the term with fixed payments. On the other hand, variable-rate mortgages fluctuate with the Prime Rate. This can either mean fluctuations in your payment, or if you choose to have set payments, the interest portion of the payment.

In the last 10 years, the prime lending rate has gone from 2.50% to 3.95% and now sits at 2.45% as of January 2022. Due to recent events, these rates have seen even more of a downturn providing huge benefits to new borrowers looking to pay as little as possible.

While a variable-rate mortgage is linked to the Prime Rate, which could cause fluctuations, historically the choice of a variable rate mortgage over a fixed term has allowed borrowers to save in interest costs.

However, due to the uncertainty and potential fluctuations that can occur with a variable-rate mortgage, it comes down to the borrowers comfort. Some individuals have no wiggle room in their budget for potential changes in mortgage payments, or they do not like the uncertainty. For these clients, a fixed-rate would be the best choice.

On the other hand, clients who qualify for variable-rate mortgages have a unique opportunity to take advantage of lower interest rates. If you have a variable-rate mortgage, you can either set a fixed-payment so that, if the interest rate drops, it means you are paying more on your principal loan each month. Or, if you have flexible payments, you may see your monthly payments drop in accordance to decreases in the Prime Rate. However, since every 10% increase in payment can save three years off the amortization of a five-year term, having fixed payments provide extra benefits. After all, extra pennies towards the principle can help make a difference over the life of a 25 or 30 year mortgage.

Let’s look at the following example:

Amy and Jake have a balance owing of $300,000 on their mortgage with a variable rate at Prime minus .80%, (giving us 1.65%) with current payments set at $703 bi-weekly. The mortgage matures in 24 months but they are considering locking in for a new five-year term at 3.34%. New payments would be $739. As much as they love their home, they are considering a move in the next couple years.

When reviewing this mortgage, it is more beneficial for them to keep the remaining variable-rate in place for two years. However, if they set the payments based on 3.34% or $739 bi-weekly, this allows them to pay an extra $72 on their mortgage per month. In 24 months, the savings on interest is $4,000 and their outstanding balance is $4,000 less than by staying in the fixed rate.

Another benefit to variable-rate mortgages is that, if you choose to sell before the mortgage term is up, the penalty is typically only three months interest as opposed to much heavier interest rate differential (IRD) calculations used to determine fixed-rate mortgage penalties.

With this strategy they don’t have to feel pressure to lock-in today, plus they can continue taking advantage of the lower variable rate.

If your mortgage is maturing in the next 90-180 days and you’re not quite sure what to do, it is a good idea to contact a Dominion Lending Centres Mortgage Professional. Not only can they provide tips for your existing variable-rate mortgage to help save you money, but they can help you assess whether fixed-rate is right for you or if you should make the switch.

Written by My DLC Marketing Team

BANK OF CANADA BUSINESS SENTIMENT LOWEST SINCE 2009

Canadian Business Sentiment Is Negative 

• Forward-looking sales indicators have collapsed. Many businesses referred to elevated uncertainty. Still, roughly half of firms anticipate that their sales will recover to pre-pandemic levels within the next year.
• Businesses in most regions and sectors intend to cut their investment spending significantly. Hiring plans are muted, although a quarter of firms plan to refill some positions after recent layoffs.
• Reports of capacity pressures and labour shortages have fallen significantly. This suggests a substantial widening in economic slack.
• Expectations for input and output price growth, as well as for overall inflation, are all down considerably.
• Credit conditions have tightened significantly, but government measures are a helpful offset.

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres

GLOBAL MARKETS IN TURMOIL AS OIL PLUNGES, PROPELLING YIELDS TO RECORD LOWS

Global Markets in Turmoil, Oil Prices Plunge Along With Yields

Markets shuddered in the face of a price war for oil and the economic fallout from the growing outbreak of coronavirus. Frightened investors poured into haven assets sending yields to unprecedented lows. Oil prices tumbled 30% after Saudi Arabia said it would cut most of its oil prices and boost output when Russia refused to join OPEC in propping up prices (see chart below). Foreign exchange markets convulsed, as the steep drops in oil and share prices overnight sparked a flight from commodity-linked currencies into the perceived safety of the Japanese yen and the US dollar. The Canadian dollar fell to 0.7362 as of this writing. The Government of Canada 5-year bond yield was as low as 0.284% overnight but has since recovered roughly 0.535%, still well below Friday’s closing level of approximately 0.65% (second chart below).

Stock prices have fallen very sharply in the first hour of North American trading. Panic selling sent the Dow down 2,000 points, and the S&P500 sank 7% after triggering a circuit breaker that halted trade for 15 minutes. The TSX took a dizzying nosedive on the open, down more than 1400 points or nearly 9.0% led down by oil stocks and financials.

The spread of coronavirus outside of China tripled over the past week. The US State Department announced yesterday that older people should avoid travel on cruises, particularly if they have compromised immune systems. All of this amplifies recession fears as the outbreak spreads.

There is concern in the US that the government is not handling the outbreak appropriately. Mixed messaging and an inadequate supply of testing kits came as the number of coronavirus cases in the US topped 500 over the weekend. President Trump retweeted a meme of himself fiddling on Sunday, drawing a comparison to the Roman emperor Nero who fiddled as Rome burned around him. This is a time when leadership is of paramount importance.

Borrowing costs are falling sharply–a silver lining for first-time homebuyers. The best advice for investors is not to panic. This, too, shall pass, although no one knows when.

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres

VIRUS ANXIETY AND THE CANADIAN HOUSING MARKET

Virus Anxiety and The Canadian Housing Market

As though things weren’t volatile enough, a new wave of virus terror is wreaking havoc on global financial markets. The novel conronavirus, COVID-19, continues to spread causing panic in worldwide stock and bond markets for the seventh day. Share prices have plummetted in Asia, Europe, the U.S. and Canada. The sell-off is fueled mostly by concern that measures to contain the virus will hamper corporate profits and economic growth, and fears that the outbreak could get worse.

Interest rates are falling sharply, hitting record lows reflecting a movement of cash out of stocks and commodities like oil, into the safer havens of government bonds and gold. In Canada, the 5-year bond yield has fallen to 1.16% this morning, down more than 50 basis points (bps) year-to-date and down 65 bps year-over-year (see chart below). Mortgage rates are closely linked to the 5-year government bond yield, so further downward pressure on mortgage rates is likely. Oil prices have fallen sharply, hitting the Prairie provinces hard. Crude oil WTI prices have fallen to just over US$45.00 a barrel compared to $62.50 earlier this year.

The Canadian dollar has also taken a beating, down to 0.7468 cents US, compared to a high of 0.7712 early this year.

The Canadian economy was already battered as today’s release of fourth-quarter GDP data shows. Statistics Canada reported that the economy came to a near halt in Q4 as exports dropped by the most since 2017 and business investment declined. Household spending was a bright spot–a reflection of a strong labour market and rising wages.

Monthly data for December, also released this morning, came in stronger than expected, showing the economy had some momentum going into 2020 before the coronavirus reared its ugly head.

The weak 0.3% growth in Q4 was expected as a series of temporary factors including a week-long rail strike, manufacturing plant disruptions and pipeline shutdowns slowed growth. Even though December posted an uptick, the first quarter will no doubt be hampered by the rail blockade and now virus-related supply and travel disruptions as well as reduced tourism.

Bottom Line: Panic selling in the stock market is never a good idea. The TSX opened down more 550 points this morning following yesterday’s outage. Trading on Thursday was suspended around 2 PM for technical reasons.

None of this is good for psychology or the economy.

The Bank of Canada meets next Wednesday, and clearly, their press release will address these issues. It’s unlikely the Bank will cut rates in response on March 4, but if the economic disruption continues, rate cuts could be coming by mid-year.

The new stress test will be in place on April 6. If rates were at today’s level, the qualifying rate for mortgage borrowers would be more than 40-to-50 basis points lower than today’s level of 5.19%. This will add fuel to an already hot housing market.

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres

MORNEAU EASES STRESS TEST ON INSURED MORTGAGES

Minister Morneau Announces New Benchmark Rate for Qualifying For Insured Mortgages

The new qualifying rate will be the mortgage contract rate or a newly created benchmark very close to it plus 200 basis points, in either case. The News Release from the Department of Finance Canada states, “the Government of Canada has introduced measures to help more Canadians achieve their housing needs while also taking measured actions to contain risks in the housing market. A stable and healthy housing market is part of a strong economy, which is vital to building and supporting a strong middle class.”

These changes will come into effect on April 6, 2020. The new benchmark rate will be the weekly median 5-year fixed insured mortgage rate from mortgage insurance applications, plus 2%.

This follows a recent review by federal financial agencies, which concluded that the minimum qualifying rate should be more dynamic to reflect the evolution of market conditions better. Overall, the review concluded that the mortgage stress test is working to ensure that home buyers are able to afford their homes even if interest rates rise, incomes change, or families are faced with unforeseen expenses.

This adjustment to the stress test will allow it to be more representative of the mortgage rates offered by lenders and more responsive to market conditions.

The Office of the Superintendent of Financial Institutions (OSFI) also announced today that it is considering the same new benchmark rate to determine the minimum qualifying rate for uninsured mortgages.

The existing qualification rule, which was introduced in 2016 for insured mortgages and in 2018 for uninsured mortgages, wasn’t responsive enough to the recent drop in lending interest rates — effectively making the stress test too tight. The earlier rule established the big-six bank posted rate plus 2 percentage points as the qualifying rate. Banks have increasingly held back from adjusting their posted rates when 5-year market yields moved downward. With rates falling sharply in recent weeks, especially since the coronavirus scare, the gap between posted and contract mortgage rates has widened even more than what was already evident in the past two years.

This move, effective April 6, should reduce the qualifying rate by about 30 basis points if contract rates remain at roughly today’s levels. According to a Department of Finance official, “As of February 18, 2020, based on the weekly median 5-year fixed insured mortgage rate from insured mortgage applications received by the Canada Mortgage and Housing Corporation, the new benchmark rate would be roughly 4.89%.”  That’s 30 basis points less than today’s benchmark rate of 5.19%.

The Bank of Canada will calculate this new benchmark weekly, based on actual rates from mortgage insurance applications, as underwritten by Canada’s three default insurers.

OSFI confirmed today that it, too, is considering the new benchmark rate for its minimum stress test rate on uninsured mortgages (mortgages with at least 20% equity).

“The proposed new benchmark for uninsured mortgages is based on rates from mortgage applications submitted by a wide variety of lenders, which makes it more representative of both the broader market and fluctuations in actual contract rates,” OSFI said in its release.

“In addition to introducing a more accurate floor, OSFI’s proposal maintains cohesion between the benchmarks used to qualify both uninsured and insured mortgages.” (Thank goodness, as the last thing the mortgage market needs is more complexity.)

The new rules will certainly add to what was already likely to be a buoyant spring housing market. While it might boost buying power by just 3% (depending on what the new benchmark turns out to be on April 6), the psychological boost will be positive. Homebuyers—particularly first-time buyers—are already worried about affordability, given the double-digit gains of the last 12 months.

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

WEAK NEW LISTINGS SLOW CANADIAN HOME SALES AS PRICES CONTINUE TO RISE.

Sellers Housing Market  Now in the Greater Toronto Area (GTA)

Statistics released today by the Canadian Real Estate Association (CREA) show that national existing-home sales dipped between November and December owing to a dearth of new listings, especially in the GTA.

National home sales edged down 0.9% in the final month of 2019, ending a streak of monthly gains that began last March. Activity is now about 18% above the six-year low reached in February 2019 but ends the year about 7% below the peak recorded in 2016 and 2017 (see chart below).

There was an almost even split between the number of local markets where activity rose and those where it declined, with higher sales in the Lower Mainland of British Columbia, Calgary and Montreal offsetting declines in the Greater Toronto Area (GTA) and Ottawa.

Actual (not seasonally adjusted) activity was up 22.7% compared to the quiet month of December in 2018. Transactions surpassed year-ago levels across most of Canada, including all of the largest urban markets.

The December decline in home sales is not a sign of weakness but is instead the result of diminishing supply. Excess demand continues to push up prices in most regions of Canada. Demand has been boosted by low interest rates, strong population growth and strong labour markets that have triggered significant gains in household incomes. Mitigating this, in part, is the mortgage stress-test, which continues to sideline some potential buyers.

According to Gregory Klump, CREA’s Chief Economist, “The momentum for home price gains picked up as last year came to a close. If the recent past is prelude, then price trends in British Columbia, the GTA, Ottawa and Montreal look set to lift the national result this year, despite the continuation of a weak pricing environment among housing markets across the Prairie region.”

New Listings

The number of newly listed homes slid a further 1.8% in December following a 2.7% decline the month before, leaving supply close to its lowest level in a decade.

Slightly higher sales and a drop in new listings further tightened the national sales-to-new listings ratio to 66.3%, which is well above the long-term average of 53.7%. If current trends continue, the balance between supply and demand makes further home price gains likely.

December’s drop was driven mainly by fewer new listings in the GTA and Ottawa–the same markets most responsible for the decline in sales. Listings available for purchase are now running at a 12-year low. The number of housing markets with a shortage of listings is on the rise; should current trends persist, fewer available listings will likely increasingly weigh on sales activity.

With new listings having declined by more than sales, the national sales-to-new listings ratio further tightened to 66.9% in December 2019 – the highest reading since the spring of 2004. The long-term average for this measure of housing market balance is 53.7%. Price gains appear poised to accelerate in 2020.

Considering the degree and duration to which market balance readings are above or below their long-term averages is the best way of gauging whether local housing market conditions favour buyers or sellers. Market balance measures that are within one standard deviation of their long-term average are generally consistent with balanced market conditions.

Based on a comparison of the sales-to-new listings ratio with the long-term average, just over half of all local markets were in balanced market territory in December 2019. That list still includes Greater Vancouver (GVA) but no longer consists of the GTA, where market balance favours sellers in purchase negotiations (see chart below). By contrast, an oversupply of homes relative to demand across much of Alberta and Saskatchewan means sales negotiations remain tilted in favour of buyers. Meanwhile, an ongoing shortage of homes available for purchase across most of Ontario, Quebec and the Maritime provinces means sellers there hold the upper hand in sales negotiations.

The number of months of inventory is another important measure of the balance between sales and the supply of listings. It represents how long it would take to liquidate current inventories at the current rate of sales activity. There were 4.2 months of inventory on a national basis at the end of December 2019 – the lowest level recorded since the summer of 2007. This measure of market balance has been falling further below its long-term average of 5.3 months. While still within balanced market territory, its current reading suggests that sales negotiations are becoming increasingly tilted in favour of sellers.

There remain significant and increasing disparities in housing market activity across regions of Canada. The number of months of inventory has swollen far beyond long-term averages in Prairie provinces and Newfoundland & Labrador, giving homebuyers ample choice in these regions. By contrast, the measure is running well below long-term averages in Ontario, Quebec and Maritime provinces, resulting in increased competition among buyers for listings and providing fertile ground for price gains. The measure is still within balanced market territory in British Columbia but is becoming increasingly tilted in favour of sellers.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose 0.8%, marking its seventh consecutive monthly gain. It is now up nationally 4.7% from last year’s lowest point posted in May. The MLS® HPI in December was up from the previous month in 14 of the 18 markets tracked by the index. ( see table below).

Home price trends have generally been stabilizing in the Prairies in recent months following lengthy declines but are clearly on the rise again in British Columbia and Ontario’s Greater Golden Horseshoe (GGH). Further east, price growth in Ottawa and Montreal has been ongoing for some time and strengthened toward the end of 2019.

Comparing home prices to year-ago levels yields considerable variations across the country, although for the most part has been regionally split along east/west lines, with declines in the Lower Mainland and major Prairie markets and gains in central and eastern Canada.

The actual (not seasonally adjusted) Aggregate Composite MLS® (HPI) rose 3.4% y-o-y in December 2019, the biggest year-over-year gain since March 2018.

Home prices in Greater Vancouver (-3.1%) and the Fraser Valley (-2%) remain below year-ago levels, but declines are shrinking. Elsewhere in British Columbia, home prices logged y-o-y increases in the Okanagan Valley (+4.2%), Victoria (+2.3%) and elsewhere on Vancouver Island (+4.2%).

Calgary, Edmonton and Saskatoon posted y-o-y price declines of around -1% to -2%, while the gap has widened to -4.6% in Regina.

In Ontario, home price growth has re-accelerated well above consumer price inflation across most of the GGH. Meanwhile, price gains in recent years have continued uninterrupted in Ottawa, Montreal and Moncton.

All benchmark home categories tracked by the index accelerated further into positive territory on a y-o-y basis. One-storey single-family home prices posted the most significant increase (3.6%) followed closely by apartment units (3.4%) and two-storey single-family homes (3.3%). Townhouse/row unit prices climbed a slightly more modest 2.7% compared to December 2018.

The actual (not seasonally adjusted) national average price for homes sold in December 2019 was around $517,000, up 9.6% from the same month the previous year.

The national average price is heavily skewed by sales in the GVA and GTA, two of Canada’s most active and expensive housing markets. Excluding these two markets from calculations cuts more than $117,000 from the national average price, trimming it to around $400,000 and reducing the y-o-y gain to 6.7%.

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres

PRINCIPAL & INTEREST

Principal and interest are the two components that make up a mortgage payment. Principal is the portion of your payment that goes towards paying down the outstanding balance of your mortgage. Interest is the other portion of your payment which goes directly into the pockets of your lender and does not contribute to paying down your mortgage balance.

What some people may not realize is that a compounding interest rate (what the majority of all mortgages are) is weighted differently depending on how many years you have left on your mortgage.

If a young couple were to purchase their very first home, lets say $500,000 for example, and they had a $100,000 down payment, their mortgage would be $400,000. If they had today’s interest rates, their mortgage would be around 3%, compounded semi-annually, over 25 years with their interest rate re-negotiable every 5-years if they keep the same term. Assuming they were able to get 3% for the entire 25-years, their monthly payments would be $1,892.98 a month for the life of their mortgage.

Their first payment however is not $1,892.98, with 97% of it going to paying down the $400,000 balance and 3% going towards interest. The very first payment would actually be broken down as $993.81 of interest and $899.17 going towards paying down the principal balance of $400,000.

Now, it wont stay like this forever, the very last payment before the first 5-year term is up would be broken down as $854.62 going towards interest and $1,038.36 of the $1,892.98 going towards paying down the principal. It wouldn’t be until year 10 where the interest portion dips below $500.

If you can, any pre-payments you make each month will directly pay down the principal balance outstanding. This will also in turn, allow for less interest to be charged as interest is always calculated based on the current balance outstanding. In the later years, it may not be as advantageous, but in the first 5-10 years, it can be extremely beneficial.

If you want to see the break down of principal and interest portions inside your own mortgage, feel free to reach out to a Dominion Lending Centres mortgage professional near you.

Ryan Oake
Dominion Lending Centres – Accredited Mortgage Professional