Tag Archives: Canada Mortgage and Housing Corp. (CMHC)

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Should you keep waiting to buy that new condo?

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Should you keep waiting to buy that new condo?

It’s July 2020, the world is still reeling from the health and economic impacts of COVID-19, and you’re spending a lot more time at home. You may find yourself more annoyed with the things your place doesn’t have, but is this really a good time to buy a new home?

The conditions in the resale market often precede movements in the new home segment, so let’s start there. The resale market in the Greater Toronto Area (GTA) has started to pick up, and the anecdotal commentary from realtors is that demand has clearly returned. However, supply is begining to increase, too, and it looks like listings are coming.

Evan Siddal, CEO of Canada Mortgage and Housing Corp. (CMHC), warned anyone who will listen that we shouldn’t be reading too much into the pricing during a low volume, low supply market. Pricing is always sticky in the short term as sellers cling to pre-pandemic prices, and are often reluctant to accept the new market reality.

CMHC recently forecast a decline in resale house prices in Canada of between nine and 18 per cent over an 18-month period, with a more muted drop in the GTA. Principal Market Analyst Dana Senagama says CMHC’s forecast for the Toronto Census Metropolitan Area calls for an increase of one to six per cent in the resale market in 2020, but there could be a drop of as much as 12 per cent next year. They didn’t factor in the recent mortgage insurance rules changes, either.

We will likely begin to see more listings in the resale market as government financial assistance programs expire, and lenders’ mortgage deferral periods run out. This could impact the resale condominium market more severely, as the decline in tourism and out-of-town contract work has resulted in many owners of short-term rentals listing them for sale and rent. This has had a negative impact on rental rates, especially in downtown Toronto.

Considering all that, how much stock do you put in the resale housing market, when you’re looking at purchasing a new condominium which may not be ready to occupy until 2025 or 2026? If you’re buying for an investment, are these pandemicimpacted figures you’re seeing an indication of what is to come? Or a temporary blip?

If you’re an investor, the recent data looks grim. The latest findings from rentals.ca and Bullpen Consulting show that rent declines for leased condos have been the deepest for twobedroom and larger suites. In addition, three brokers told a recent webinar hosted by In2ition Realty that two-bedroom demand was non-existent. Expensive units and a decline in desire to take on roommates at this time is killing that market. Working from home with a roommate isn’t popular. But, a vaccine could be approved next year and everything could go back to normal.

This may seem like semantics, but the condo rental market is not oversupplied right now – it is suffering from under demand. People are afraid to move, others who want to come from other countries for work and school cannot, and even recent graduates are starting jobs by working at home at their parent’s residence. There is a freeze on movement – retirees not moving down, new households not forming and delinquent tenants not evicted. We are not in a normal market, not even close.

If you put my feet to the fire, I’ll say the GTA new home market begins to recover in the second half of 2020. There have already been a couple successful new condo projects launched in the past three months.

These new-home buyers are clearly focusing on the long term. Toronto is a dynamic city and people will come here, businesses will come here. Turmoil south of the border regarding the virus and the divisive political climate will only help us when we open the borders again.

If you’re buying with a five- to 10-year hold anticipated, rates are good, and developers are offering some intriguing incentives. My advice is to surround yourself with a knowledgeable team, beginning with a realtor and a mortgage broker, buy what you can afford, and buy for the long term. Good luck.

Ben Myers is President of Bullpen Consulting, a boutique residential real estate advisory firm specializing in condominium and rental apartment market studies, forecasts and valuations for developers, lenders and land owners. bullpenconsulting.ca Twitter@benmyers29

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CMHC tightens mortgage regulations slightly

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CMHC tightens mortgage regulations slightly

Canada Mortgage and Housing Corp. (CMHC) has tightened mortgage regulations slightly in response to deteriorating economic conditions brought on by COVID-19.

CMHC mortgage regulations

Effective July 1, new applications for homeowner transactional and portfolio mortgage insurance would have to meet a minimum credit score of 680 for at least one borrower. In addition, funds borrowed for a down payment that increase indebtedness will no longer be treated as equity for insurance purposes, and Gross/Total Debt Servicing ratios are to be limited to the standard requirements of 35/42.

Vulnerabilities

“COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” says Evan Siddall, CMHC president and CEO. “These actions will protect homebuyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth.”

Job losses, business closures and a drop in immigration are adversely impacting Canada’s housing markets, CMHC says, with potentially a nine- to 18-per-cent decrease in house prices over the next 12 months.

“CMHC’s policy changes come at an interesting time when the housing market finally seems to be getting back on track after a substantial drop in sales during April and May,” Jesse Abrams, co-founder and CEO of Homewise told Condo Life magazine. “These changes will not only make qualifications tougher, pushing up the floor for credit scores to 680, but also decrease the affordability of many buyers who need an insured mortgage by lowering debt to income ratios. Unfortunately, the hardest-hit market may be first-time homebuyers.”

Lesser impact

Another national mortgage insurer, Genworth Canada, says it has no plans to change its underwriting policy related to debt service ratio limits, minimum credit score and down payment requirements.

“Genworth’s decision to not follow CMHC’s policy changes creates a competitive advantage for them in the marketplace, while reigniting the flame of many prospective homebuyers who were demotivated by CMHC’s decision,” Abrams says. “Most lenders use both CMHC and Genworth, so it is quite possible that the CMHC policy change does not actually affect any homebuyers.”

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There’s no time like the present, as lowrise prices are moderating

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There’s no time like the present, as lowrise prices are moderating

Lowrise prices are moderating, and homebuilders are offering purchase incentives

The prospect of owning a lowrise home in the GTA has traditionally been a cost prohibitive one for most buyers in the market. But the once yawning price gap between lowrise homes and condominiums has started to come a bit more into balance as of late. This means it could be a good time for some to consider the purchase of a lowrise home; if not a detached house, then perhaps the relatively more affordable option of a townhouse.

The Canada Mortgage and Housing Corporation is forecasting that the GTA’s lowrise housing market is headed for a slight downturn this year, largely owing to a lack of land for the development of single-family and townhouses. That said, suburban regions such as Peel, Durham and York will account for higher concentrations of the GTA’s single-family detached sales and listings moving forward, and CMHC says that should slow price appreciation in the lowrise segment.

Condos continue to be the more affordable alternative to new single-family homes. But the difference in pricing between new single-family homes and new condos has narrowed significantly over the past two years, according to a new report from Altus Group.

The benchmark price of a singlefamily home in the GTA finished 2018 at $1.14 million, about 13 per cent below the peak it reached in July 2017, Altus Group notes. Meanwhile, the benchmark asking price for a new Toronto condo hit $796,815 at the end of 2018, an increase of 11 per cent from the previous year and a new all-time high for condos.

There is still a limited selection of affordable lowrise options out there for most buyers in the market, with only one in five new single-family homes available to purchase at the end of 2018 priced below $750,000. But Altus Group notes that single-family inventory levels rose slowly and steadily throughout 2018 and rose above the 5,000-unit mark by late 2018, the first time this has been the case for the GTA since way back in June 2015.

What’s more, in a bid to compensate for the dip in demand that followed the federal government’s introduction of new more stringent mortgage rules last year, lowrise homebuilders have been offering a range of purchase incentives, including sharpen prices, décor dollar credits, and designer upgrades.

Lowrise homes are still priced well above the average condo and many still won’t be able to afford to purchase that category of housing. However, townhouses, which offer a more reasonable price point than detached homes, and more space than condos to accommodate growing families, could represent the best of both worlds. Townhouses generally cost less to purchase than detached houses, and they typically tend to appreciate in value faster than condos, at least in the early years.

Whether it’s a single-family home or a townhouse, if you wanted to get into the GTA lowrise home market, it would appear that there’s no time like the present.

Debbie Cosic, CEO and founder of In2ition Realty, has worked in all facets of the real estate industry for over 25 years. In2ition.ca

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How the new government initiative could help condo buyers

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How the new government initiative could help condo buyers

The federal government wants to help you buy your first home. In the 2019 budget, the government unveiled brand new plans that, it says, will help young buyers who have been shut out of the real estate market.

This includes the new First-Time Home Buyer Incentive and the expanding of the ‘Home Buyers’ Plan. Both can be used to buy a condo unit. Here is what you need to know.

Criteria to qualify

The new First-Time Homebuyer Incentive will allow eligible first-time homebuyers to apply to finance a portion of their home purchase through a shared equity mortgage with Canada Mortgage and Housing Corp. (CMHC). Eligibility means you have to have the minimum down payment for an insured mortgage. That is five per cent for a resale home and 10 per cent for a new home. Your household annual income cannot exceed $120,000. Lastly, the insured mortgage cannot be greater than four times the participants’ annual household income. Meaning the mortgage cannot exceed $480,000.

Pay back rules not clear

It’s not clear how much has to be paid back; is it an equal equity share or money borrowed plus interest? Those terms and conditions are expected to be released by CMHC. But the government clearly states that no ongoing payment will be required while you own your first home or still have a mortgage payment on it.

How it claims to help

The thinking is this will lower your overall monthly payments, effectively making your home more affordable to live in then if you had to carry a larger mortgage. Here is an example the federal budget detailed:

If a borrower purchases a new $400,000 home with a five percent down payment and a 10-per-cent CMHC shared equity mortgage ($40,000), the borrower’s total mortgage size would be reduced from $380,000 to $340,000, reducing the borrower’s monthly mortgage costs by as much as $228 per month.

Old program limit increased

Along with this new initiative, the government proposes to increase the Home Buyers’ Plan withdrawal limit from $25,000 to $35,000. First-time homebuyers who have money saved in their RRSP can withdraw that amount without penalty to use towards the down payment on their first home. That money has to be paid back into the RRSP over 15 years. If you borrow the maximum amount you would need to deposit $2,333 a year back into your RRSP. Bear in mind that is on top of all the regular mortgage payments you would be making.

Little to help affordability

Critics say this will do little to help young people in Canada’s most expensive markets such as Toronto and Vancouver, as average home prices are in the seven figures. But these schemes could be advantageous for anyone looking to buy their first condo unit. According to the latest figures from the Toronto Real Estate Board, the average price of a condominium apartment was $558,728 at the end of 2018.

Before the new initiatives were announced in the federal budget, Jason Mercer, TREB’s director of market analysis, said, “The condominium apartment segment continued to be a key entry point into the GTA homeownership market in 2018. Higher mortgage qualification standards meant that many first-time buyers were looking for more affordable housing options.”

If you’re a first-time homebuyer shopping for a condo in that price range, you could be in luck. But for most others, these plans will do little to help Canadians afford to live in the most expensive cities.

Rubina Ahmed-Haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney.

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Don’t panic about Canadian home sales dropping sharply in February

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Don’t panic about Canadian home sales dropping sharply in February

Canadian home sales dropped sharply in February 2019 from the previous month. But you likely don’t need to worry. Here’s why.

The latest statistics from the Canadian Real Estate Association (CREA) show that national home sales dropped sharply – 9.1 per cent – from January to February 2019.

Not only that, but the national average sale price fell 5.2 per cent, year-over-year.

Holy!

These are pretty huge and potentially scary numbers. Except that those refer to the national housing market, and there really is no such thing.

It’s a simple point that escapes many consumers: Real estate is local, and these days more local than ever.

What do we mean?

Well, the CREA, Canada Mortgage and Housing Corp. (CMHC) and other major real estate bodies are mandated to oversee the national market.

So, when CREA issues a release that says Canadian home sales are down by X per cent, or when CMHC reports the national vacancy rate is down for the second consecutive year – and major media report such headlines – people tend to worry.

You must remember, however, that when you buy a home, you don’t buy the national market. You buy one house, on one street, in one neighbourhood, in one city and region.

If you live in Ontario, Alberta’s ongoing oil industry struggles, which are pulling down home sales and prices in that province, aren’t likely to affect the performance of your market. Forget the national headlines. Drill down into what’s happening where you live.

Here’s why it matters

Examining CREA’s latest stats, actual (not seasonally adjusted) sales activity was down 4.4 per cent to reach the lowest level for month of February since 2009. It was also almost 12 per cent below the 10-year February average. In BC, Alberta and Newfoundland and Labrador, sales were more than 20 per cent below their 10-year average for the month.

In terms of prices, in BC, prices were down on a year-over-year basis in Greater Vancouver (-6.1 per cent) and the Fraser Valley (-2.8 per cent).

In the Greater Golden Horseshoe, however, benchmark home prices were up from year-ago levels in Guelph (6.8 per cent), the Niagara Region (6.5 per cent), Hamilton- Burlington (five per cent) and the GTA (2.3 per cent). Prices were little changed (up 0.2 per cent) on a y-o-y basis in Oakville-Milton, while in Barrie and District prices remain below year-ago levels (-4.3 per cent).

Further illustrating that market performance across Canada is – literally and figuratively – all over the map, prices were down by 4.4 per cent in Calgary, 4.5 per cent in Edmonton, 5.1 per cent in Regina and three per cent in Saskatoon.

But in Ottawa, home prices rose 7.4 per cent year-over-year, 6.2 per cent in Montreal and 1.6 per cent in Moncton.

The issues that exacerbate local market conditions – such as mortgage regulations – are worth paying attention to, however.

“For aspiring homebuyers being kept on the sidelines by the mortgage stress-test, it’s a bitter pill to swallow when policy makers say the policy is working as intended,” says CREA President Barb Sukkau. “Fewer qualified buyers means sellers are affected too. The impact of tighter mortgage regulations differs by local housing market and a professional realtor remains your best source for information and guidance in negotiating the purchase or sale of a home during these changing times.”

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