Laurin Jeffrey | March 11, 2011
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Home prices approaching bubble territory, BMO says

CTV.ca News Staff

The Canadian housing market could be headed for trouble if there is no moderation in prices in the months ahead, the Bank of Montreal says in a new report.

Housing prices are currently about 10% above what they were before the recession, which was already an all-time record.

The bank says housing prices are rising faster than personal incomes, a worrisome trend which is making the market less stable.

Bank of Montreal economist Sal Guatieri says that a nationwide correction is unlikely, but would be possible if the price-to-income trend doesn’t change, or if interest rates spike.

At the moment, the risk is not the same in every housing market in Canada, with some provinces seeing more extreme conditions than others.

The most concerning scenario is in Saskatchewan where the price-to-income ratio is 39% above historic norms, followed by Newfoundland at 34%; British Columbia and Manitoba, with each at 31%; and Quebec at 29% above normal levels.

In Canada’s largest province, Ontario, this same ratio sits only 10% above historic levels, which suggests its housing market may be overvalued, but is not in danger of collapse.

The good news is that the bank expects household incomes to grow faster than housing prices in the future, which would make a major correction unlikely.

The Bank of Montreal says that tougher mortgage rules and higher interest rates should help stabilize housing prices and cool down sales.

The report is the latest warning about rising housing prices and the risks they pose to the Canadian economy.

A February report from Capital Economics warned an existing housing bubble was set to burst, a potential collapse that could be triggered by rising interest rates. The economics consulting firm predicted that housing prices could fall 25-35% over the next three years as interest rates increase.

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Contact the Jeffrey Team for more information  -  416-388-1960

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Category: Ajax Real Estate, Buying Real Estate, Detached Homes, First Time Buyers, General Real Estate, Mortgages, Oshawa Real Estate, Pickering Real Estate, Real Estate Investment, Scarborough Real Estate, Selling Real Estate, Semi-Detached Homes, Townhouses | Tags: , , , , , , , , , , , , , ,
Laurin Jeffrey | March 10, 2011
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BMO Advises Mortgage Stress Tests

PropertyWire.ca

It is an interesting time in the mortgage industry – with the impending changes of Jim Flaherty’s mortgage lending restrictions- as well as expected eventual hike in interest rates. There is much focus been put on the question- can Canadian mortgage holders weather this brewing storm?

According to a recent survey done by BMO Bank of Montreal, most homeowners feel confident that they will still be able to manage their mortgage obligations if and when interest rates rise; one fifth of those surveyed do not have the same confidence.

According to BMO, “a typical new home buyer uses just over one third of their average household disposable income to service their mortgage today, in line with historical norms. ”

“Total housing expenses should not consume more than one third of total household income,” says Katie Archdekin, Head of Mortgage Products, BMO Bank of Montreal. “However, it is still important to be prudent and stress-test your mortgage against a higher interest rate to ensure you can afford what you signed up for.”

Jeffrey Schwartz, Executive Director, Consolidated Credit Counseling Services of Canada, Inc, urges even more caution in the face of uncertainty.” Mortgage payments shouldn’t exceed 25% of income, which is hard sometimes, in some centres.”

The current appearance of affordability should not be taken for granted, and Canadians are encouraged to “stress test” their mortgage, to make sure that their debt load is manageable- and could withstand higher payments.

BMO Economics “forecasts that the Bank of Canada will raise interest rates by one%age point before the year-end.”

“Despite high prices, housing remains reasonably affordable due to record low interest rates,” said Sal Guatieri, BMO Economics. “That said, Canadians should prepare for interest rates to eventually return to historic norms.

BMO suggests several ways to develop a strategy to attack potential mortgage debt management problems before they start.

Choose a fixed rate over a variable rate; rates are still low right now, and it makes sense to take advantage when the sense is that they will only go up; don’t forget about other housing costs (taxes, utilities, etc.) that are in addition to mortgage payments, and include them in your monthly budgeting; for first time homebuyers- increase your down payment—which will effectively lower your payments.

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Contact the Jeffrey Team for more information  -  416-388-1960

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Category: Buying Real Estate, First Time Buyers, General Real Estate, Mortgages, Pickering Real Estate | Tags: , , , , , , , , , , , , , , , ,
Laurin Jeffrey | March 9, 2011
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Home Ownership More Affordable

Home affordability continued to improve for Canadians in the last quarter, according to the Housing Trends and Affordability report released by RBC Economics Research. Slight rises in home price appreciation, coupled with a modest dip in five-year mortgage rates are the most likely factors.

“Some of the stress that had been building in the housing market between 2009 and the first half of 2010 has been relieved, but tensions persist overall and the recent improvement in affordability is likely to be short-lived,” said Robert Hogue, senior economist, RBC, speaking with PropertyWire.Ca. “We expect that the Bank of Canada will resume its rate hike campaign this spring and with borrowing costs set to climb further in the next two years, housing affordability will erode across the country. That said, we don’t expect this to derail the housing market because of rising household income and job creation from the sustained economic recovery.”

Says Hogue, there are additional elements leading to an expectation of balance. “There is also expected balance between supply and demand. Prices will also likely stay flat, with small increases. In that context- the market is calm and moving sideways in the likely outcome. There is no real rush to buy, and no rush to sell.”

“Across the country, markets by and large are in balanced range.”

Price appreciation has fallen back to more manageable levels, in the face of this new balance in the market. The expectation is that price appreciation will continue, but a much slower, and more sustainable pace than had been seen in recent years.

“We expect affordability measures will rise gradually in the next three years or so while monetary policy is readjusted, but will land softly thereafter once interest rates stabilize at higher levels,” added Hogue. “This pattern would be consistent with moderate yet sustained stress on Canada’s housing market. Overall, the era of rapid home price appreciation of the past 10 years has likely run its course and we believe that Canada has entered a period of very modest increases.”

Looking at different housing types across the country, the detached bungalow benchmark measure fell back slightly to 39.9%; Standard condominium measure fell to 27.6%; the standard two-storey home fell to 46%.

Most provinces reported forward movement in terms of affordability- most notably in Alberta. Decreases continued in Alberta- this time declining by “1.0% to 2.4%.” This builds on top of consistent declines since 2007. The combination of lower interest rates, and steadily decreasing home prices, have both contributed to the increase in affordability.

According to the report, the days for this may be numbered in Alberta,” The significant improvement in affordability is near the end of its line, however, as demand has shown more vigour in recent months – alongside a provincial economy that is gaining more traction – and the market has become better balanced. RBC expects that this will stem price declines this year, thereby removing a potential offset to the negative effect of projected rise in interest rates on affordability.”

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Contact the Jeffrey Team for more information  -  416-388-1960

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Category: Ajax Real Estate, Buying Real Estate, First Time Buyers, General Real Estate, Mortgages, Pickering Real Estate | Tags: , , , , , , , , , , , , , , , , , ,
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