Tag Archives: Stress Test

BILD Outlook 2020

Outlook 2020 – what’s in store for GTA housing next year?

Latest News


Outlook 2020 – what’s in store for GTA housing next year?

Global and even some Canadian economic and political uncertainty shouldn’t derail growth in the GTA housing market next year, according to experts at the Building Industry and Land Development Association’s (BILD) recent Outlook 2020 event.

Craig Wright, senior vice-president and chief economist at RBC, and Peter Donolo, political and communications strategist with Hill + Knowlton Canada, said that overall, the fundamentals for the economy and housing market in Ontario and the GTA bode well for 2020. There are some challenges, however – namely the ongoing new home supply issue.

With Justin Trudeau’s Liberals re-elected as a minority government, Canada will see a relatively stable left-leaning federal government that will focus on environmental issues, affordability and redistribution rather than on economic growth, Donolo says.

BILD Outlook 2020
Left to right, Dave Wilkes, Peter Donolo and Craig Wright

Globally, geopolitical uncertainty and softening economic growth mean that Canada faces challenges with export and investment, leaving the heavy lifting to the consumer, according to Wright. Economic growth is expected to be modest and in line with employment and income, at about 1.7 per cent, and interest rates will likely continue to be low.

Strong employment growth

For Ontario, GDP growth will likely be a notch below, about 1.5 per cent, with housing starts for 2019 and 2020 at about 72,000 units, compared to about 79,000 in 2018, Wright says.

“That reflects a number of factors,” Wright told HOMES Publishing. “We continue to see strong employment gains, Ontario is leading Canada in terms of employment growth on a year-over-year basis, and strong population growth. So, strong fundamentals supporting it, in a low rate environment.”

BILD Outlook 2020 Craig Wright
Craig Wright, senior vice-president and chief economist, RBC

The GTA’s robust population growth will continue to drive demand for both ownership and rental housing, Wright says. Municipal and provincial governments are shifting to supply-side solutions for balancing the housing market.

“As you look at the structural reality of the GTA market, where we have immigration coming in… we have 140,000 to 150,000 people coming to this region each and every year,” adds BILD President Dave Wilkes. “That really does bode well for our industry.”

The mortgage stress test needs to be revisited in light of the continued low interest rates, Wright says.

Millennial attitudes

Another issue that might affect the Canada and the building industry is Millennials and their views on the environment and the economy – attitudes Donolo describes as “absolute.”

BILD Outlook 2020 Peter Donolo
Peter Donolo, political and communications strategist, Hill + Knowlton Canada

“When I say absolute, you talk about the oil sands and it’s like you’re talking about the Medellin drug cartel,” he says. “They’re not conscious or interested in the fact that the oil sands and Canada’s oil and gas sector is a kind of the backbone of the Canadian economy, that millions of jobs depend on it… They’re not interested in a kind of slow transition or weaning away from it. They think it’s immoral… and this is a very widespread view.”

Millennial views on homeownership are also different, Donolo says.

“Do Millennials look differently at what homeownership is about? Are they less interested in owning a traditional detached house with a backyard and property? If you look at rates of drivers licenses among Millennials, there is perhaps an indication.”

RELATED READING

5 things we can learn from real estate in 2018

Building and development brings benefits to the GTA

City of Toronto councillors decision irresponsible and will worsen housing affordability and supply problems

 

 

SHARE  

Featured Products


GTA waterfront homes

Budget 2019 comes up short

Latest News


Budget 2019 comes up short

GTA waterfront homes

The federal government released the much-anticipated Budget 2019 this week, with homebuyers, builders and others awaiting measures to address housing issues.

And in short, it comes up, well… a little short.

First-time homebuyer help

Much of the housing focus in Budget 2019 was on addressing the needs of first-timers, namely with a new First-Time Home Buyer Incentive.

  • The Incentive would allow eligible first-time homebuyers who have the minimum down payment for an insured mortgage to apply to finance a portion of their home purchase through a shared equity mortgage with Canada Mortgage and Housing Corp. (CMHC).
  • About 100,000 first-time buyers would benefit from the Incentive over the next three years.
  • Since no ongoing payments would be required with the Incentive, Canadian families would have lower monthly mortgage payments. For example, if a borrower purchases a new $400,000 home with a five-per-cent 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.
  • CMHC to offer qualified first-time homebuyers a 10-per-cent shared equity mortgage for a newly constructed home or a five-per-cent shared equity mortgage for an existing home. This larger shared equity mortgage for newly constructed homes could help encourage the home construction needed to address some of the housing supply shortages in Canada, particularly in the largest cities.
  • The First-Time Home Buyer Incentive would include eligibility criteria to ensure that the program helps those with legitimate needs, while ensuring that participants are able to afford the homes they purchase. The Incentive would be available to first-time buyers with household incomes of less than $120,000 per year.
  • Budget 2019 also proposes to increase the Home Buyers’ Plan withdrawal limit from $25,000 to $35,000, providing first-time buyers with greater access to their Registered Retirement Savings Plan savings to buy a home.

Noticeably absent from the housing measures was any adjustment to the stress test, which a number of experts say is necessary.

Industry reaction

“The Building Industry and Land Development Association (BILD) agrees with (Federal Finance Minister Bill Morneau’s) comments that there aren’t enough homes for people to buy or apartments for people to rent,” says Dave Wilkes, president and CEO.

“BILD feels the policies presented in (the) budget are a step in the right direction to help first-time homebuyers. We will continue to advocate for a review of the stress test so that first-time homebuyers can realize the dream of homeownership. Supply challenges still exist and are at the centre of the current unbalanced market, and we call for action on these by the provincial and municipal government.”

Supply challenges in the Greater Golden Horseshoe are serious, and Budget 19 fails to address them.

“This was a re-election budget that didn’t move the dial for new-home buyers in the GTA,” Richard Lyall, president of the Residential Construction Council of Ontario (RESCON) told HOMES Publishing. “While increasing RRSP borrowing for first-time homebuyers is helpful, creating The First-Time Homebuyer Incentive at a maximum of $500,000 doesn’t help many Torontonians or GTA residents.”

The Canadian Home Builders’ Association (CHBA) had been recommending a shared appreciation mortgage approach for some time, as a tool to help those who can’t get into homeownership but have the means to pay rent.

The modification to the RRSP Home Buyers’ Plan will help get Canadians into their first home, but will also act as a burden because the loan has to be repaid within 15 years, including a minimum of 1/15th per year.

“This means that, in the years following their home purchase, a homeowner has the additional financial responsibility of repaying their RRSP,” says James Laird, co-founder of Ratehub Inc. and president of CanWise Financial.

Important details of the First-Time Home Buyer Incentive program have yet to be released. For example, says Laird, it remains unclear whether the government would take an equity position in homes, or whether the assistance would act as an interest-free loan.

“This is an important distinction because if the government is taking an equity stake in a home, the amount the homeowner would have to pay back would grow as the value of the home increases,” he says.

The very launch of the program is surprising, Laird says, given that the BC Government implemented a similar measure a couple years ago, with unsuccessful results, and it was terminated in 2018. First-time home buyers found it difficult to understand and unappealing to have the government co-own their home.

Let’s do the math

Under existing qualifying criteria, including the stress test, homebuyers can qualify for a house that is 4.5 to 4.7 times their household income.

Under the new First-Time Home Buyer Incentive, however, the government has set a purchase limit of four times household income for the mortgage, plus the amount provided by the government, according to Ratehub.

By participating in this program, first-time homebuyers effectively reduce the amount they can qualify for by about 15 per cent, and their monthly mortgage payment naturally decreases in lockstep.

A household with $100,000 of income, putting a minimum down payment of five per cent, can currently qualify for a home valued at $479,888 with a $2,265.75 monthly mortgage payment.

Affordability calculations

The maximum purchase price for the same household, if they participate in the first-time homebuyer incentive, drops to $404,858.29 with a five-per-cent minimum down payment. The total mortgage amount would then be $400,000 (or four times their household income).

Mortgage payment calculations

If the household took a five-per-cent incentive from the government (for resales), their mortgage amount goes to $378,947.37, and monthly payment is now $1,810.90.

If the household took a 10-per-cent incentive, (for new homes) their mortgage amount goes to $357,894.73, and  monthly payment is now $1,710.29.

Stress test modifications

The CHBA is among the industry groups that is pushing for modifications to the existing mortgage stress test, which has served to lock out too many well-qualified Canadians due to the market and interest rate changes of the past year.

“The First-Time Home Buyer Incentive, if coupled with immediate adjustments to the stress test, has the potential for getting the housing continuum functioning again,” says CHBA CEO Kevin Lee. “It is essential that these changes come quickly, though. Current restrictions on mortgage access mean that many millennials and new Canadians are seeing homeownership slipping away, and in many markets the economic impacts are substantial.”

Looking ahead to the 2019 federal election, CHBA will be encouraging all federal parties to address housing affordability in very meaningful ways in their respective platform documents.

Budget 2019 housing measures

Budget 2019

 

 

SHARE  

Featured Products


Floman_Feb_BB_fi

The Salesman: The Wave Theory

Latest News


The Salesman: The Wave Theory

By Dan Flomen
Empire Communities

If you have been in real estate long enough, you know about the wave theory. No, I’m not referring to a mathematical theory, but the rise and fall of the velocity of sales in the market.

From-time-to-time, and often due to governmental interference, the number of sales in a given quarter rise or fall. The more the volume of sales fall, the greater the news coverage.

The beginning of this year should prove to be a slower sales cycle, not because of pricing, which continues to rise, but because of the government’s desire to slow the pace of sales under the premise of protecting the future. Because of that, the new mortgage rules and stress test are now in place. Some statistics show that 10 per cent of the market will no longer be able to purchase a home. Others have stated that is a lowball estimate. But what is the underlying reason behind the government’s changes to the rules? Is it to actually slow the market or to ensure that buyers are not over-extending themselves and protecting the future? Only time will tell, but the issues surrounding the new stress test are not black and white.

The first issue is that they are requiring conventional buyers to qualify at a much higher interest rate and therefore eliminating many potential homeowners who would otherwise qualify. Keep in mind they are basing this on potential future increases in interest rates, while at the same time not factoring in employment income increases. In other words, they are saying you need to qualify for a much larger monthly payment (assuming the rates go up over the next several years) but not factoring in salary increases.

This makes no sense. This creates undue pressure on young families trying to get into the market. Forget investors for a moment and focus on Canadians trying to get into homeownership.

The other issue is that so much emphasis was put on getting this message out that the fear mongering will take over the psyche of many who do qualify.

This in turn will affect the volume of sales in the short term.

The silver lining in all this is that — like a wave — the slower short-term sales numbers will often be offset by a rush of sales in the second quarter when the reality of the changes are absorbed and understood better. The initial shock to the general public will be forgotten and buyers seeking a home or an investment will come back.

Let’s face a truth: Toronto and the outlying areas are still a great opportunity for long-term investing. As well, the first quarter will see some unique opportunities for those people looking to get into the market. Waiting too long may result in missing out on lower prices; as with any wave, with rising sales volume prices increase, too.

Take your time and purchase wisely … but don’t stop buying.

Dan Flomen is EVP, sales at Empire Communities and EVP at TFN Realty Inc.
https://empirecommunities.com/
http://tfnrealty.com/

SHARE  

Featured Products