Now Creative Group October 6, 2017 No Comments

Stress Tests May Squeeze Homebuyers

Home buyers could lose a quarter of their home buying power if federal officials get their way in establishing guidelines to prevent people from borrowing too much. Federal officials are proposing stress testing uninsured mortgages. Uninsured mortgages are ones with a 20% minimum down payment. The government is wary about the financial sustainability and serviceability of these mortgages if interest rates rise.
If stress testing becomes a norm, it will reduce the ability of Canadians to borrow money and take on mortgage debt, and will place enormous pressures on an already pressured market to respond. Developers will see their pool of potential customers decreased, and demands for cheaper housing, which is already high, will continue to increase.
The federal agency responsible for stress tests in the financial system is the Office of the Superintendent of Financial Institutions (OSFI), located in Toronto with offices around the country. OSFI’s mandate is to ensure that risk and contagion in the financial system is a low as possible. One particular area of concern has been the long-term reality of low-interest rates and their impact on mortgage insurance, banks, overall debt in the country, and the stability of the financial system.
While many recent changes to regulation, down payment standards for housing purchases, and interest rate increases have added stability and cooled what was an inflamed market, OSFI continues to work towards tougher and tighter standards in anticipation of future market risks. When recently questioned about the state of the housing market and the need for tougher measures, Federal Finance Minister Bill Morneau made the point that he felt enough had been done and that further action was not necessary for the time being.
With future interest rate rises on the horizon and the possibility of stress tests, it is clear that regulators are weary and vigilant about the potential risks to Canada’s housing market – a market that has become crucial to economic activity and the livelihoods of hundreds of thousands.

Now Creative Group October 2, 2017 No Comments

How Millennials Can Prepare for a Real Estate Investment

If you’re a millennial thinking of venturing into the real estate world, there’s a few things you need to learn about before taking your journey. You might be already drowning in student debt, and generating low income, however, knowing how to make your process easier will ultimately help you stress a little less and reach your goal a lot faster.

Think about long term property value

The first step you can take is to do your research and to find a location that matches affordability with long term equity (value) growth potential. Once you figure out where you would like to see yourself living, plan around it. Find out about the local community, restaurants, malls, gas stations, neighbours and school districts. Setting a goal for yourself will not only help you narrow down where you want to live, but make your agent’s job easier in finding what you’re looking for.

Increase your credit score

There is a good chance that your credit score may not be as good as you would hope for it to be due to student loans, job insecurity, or unstable financial circumstances. If you plan on making your purchase within the next few years, it would be a good idea to spend the time leading up to it building a good credit score. Money lending officers will scrutinize your credit score and decide whether giving you a loan would be a good fit for them. Spend some time planning your finances and learn to discipline your spending habits.

Save up

Saving up could be a challenge especially if you are a millennial with student loans. But being able to save can be a testament to your self-restraint and what you can accomplish when you set your mind to it. Taking out a percentage of each of your paychecks and stashing it away, paying off high-interest loans first, making bigger minimum payments, and spending the rest on necessities will help you save a lot quicker.

Know the market

Start out by knowing your budget and how much you’re willing to spend on your home. Match this budget to what your desired location of stay is and work around it. Learn about how long it takes the houses in that area to sell, how many times they’ve been sold, and if the price ever drastically changed. Knowing all this information will validate which home will be the best investment.

Now Creative Group September 26, 2017 No Comments

News from Washington and Ontario Real Estate

The Federal Reserve is the Central Bank of the United States. Like the Bank of Canada, the Federal Reserve, known as the Fed, manages the U.S. dollar by determining interest rates, and controlling the money supply (regulating the amount of money printed or injected into the system). The Fed also has significant regulatory powers – having a great deal of power in inspecting and administering American commercial and investment banks. It plays a significant role in determining capital reserve requirements (how much money banks keep on hand), and keeps an eye on banks to ensure their activities do not harm the U.S. and international financial system; largely to prevent a repeat of the 2007-8 crisis.

The Fed is the most powerful central bank on the planet by far, and plays a massive role in influencing the global economy and broad economic and financial trends. For the last decade, it led the way and began the international trend of lowering interest rates, printing money to inject liquidity into the international financial system, and loaned commercial and other Central banks trillions of dollars to keep them stable, functioning, and healthy. This Wednesday, Federal Reserve Chairwoman Janet Yellen announced that the Fed would no longer continue its policy of quantitative easing (money printing and asset buying) to support the credit and financial markets. It also sent strong signals that its decade long policy of low interest rates, easy money, and loose credit is fully and totally ending.

The Fed will likely raise rates one more time before the end of the year. The effects of these announcements are very important for Canada and the southern Ontario real estate market. The Bank of Canada almost always mimics the Fed’s actions and follows in its footsteps, as do other Central Banks because of the weight of the U.S. dollar and the size of the U.S. economy. The Bank of Canada has already bucked the Fed and is raising rates faster than the Fed. But the announcement that the Fed will no longer continue its loose policies will only encourage and reinforce the emerging trend by Bank of Canada (BOC) Governor Stephen Poloz in making money more expensive and in increasing interest rates.

A recent report by the Bank of International Settlements in Switzerland (BIS), the “central bank of central banks”, indicates that some members of the BIS believe that higher interest rates will now become the new norm and that the firm orthodoxy of easy money is now truly and completely, a thing of the past. The great international financial institutions of the world are moving to make money more expensive, and in the long term this will mean higher and higher mortgage rates, and less flexibility for our already Conservative banks to approve new mortgages.

Now Creative Group September 18, 2017 No Comments

After the Rate Hikes

The Government of Canada is carefully examining the effects of two rapid Bank of Canada rate hikes on the economy, the real estate market, and consumers. The immediate impact of the hikes saw prime mortgage rates increase across the entire spectrum in Canada, with variable rate mortgage holders affected the most. The rate hikes will likely slow down economic momentum, cool the housing market, and encourage consumers to keep on eye on their borrowing and spending habits – which were the intentions of the rapid hikes to begin with.

The economic data to be released in the next few weeks will likely influence the Bank’s decision on rates in October. There is a strong expectation that the Bank will likely increase rates again, as its position has become very hawkish. If the economic and real estate data is exceedingly poor and falls flat of baseline expectations, the Bank is likely to send warmer signals to the market that it will take its time on rates and raise them in a more gradual way over the medium to long term.

Governments around the world are very sensitive to interest rates. Increases that are too fast and too significant can significantly dampen economic growth and can spawn considerable resentment and unpopularity amongst voters. One of the key indicators of a government losing an election is the trajectory of interest in the run up stages. Federal Finance Minister Bill Morneau did not appear to voice his intention or opinion to act further on cooling the housing market. Interest rates in Canada are set by the Bank of Canada, which is fully independent of the government and which has complete and total purview over monetary policy.

Now Creative Group September 13, 2017 No Comments

Bank of Canada tightening tough on Markets

The Bank of Canada’s (BOC) decision to raise interest rates by a quarter basis point again last week came as a surprise to many and solidified the reality that the Bank has taken an aggressively hawkish position on the cost of money. The BOC had already reversed a historically unprecedented 7-year policy of record low interest rates on July 12th by topping the rate up to 0.75%. The second-rate rise in less than 2 months sent the value of Canadian dollar up but also had a direct impact on increasing mortgage costs and making business and commercial lending more onerous on borrowers as well. 

Canada’s big five banks immediately responded to the hike by announcing that their own respective mortgage rates would increase as well. The increase will have a powerful impact on the national housing market. In some regions where recent changes already had a significant cooling effect, the increase will only further make borrowing costs higher, particularly for first time buyers trying to enter the market. The move will also dissuade better prepared buyers who already have equity in the market from buying more or better-quality housing as equity growth and buying demand cools due to loss of market dynamism.

30% of Canadian homeowners who have variable rate mortgages will now have to adjust their household spending to make ends meet. While the rate rises may seem insignificant, the pace of the rate increases means that incrementally more expensive borrowing costs will accumulate and add up. This month’s increase also suggests that the Bank will likely increase rates again in October, as this matches the now emerging pattern of accelerating rates and lines up with the BOC’s increasingly hawkish and tightening rhetoric, and market expectations.

Why?

Many are scratching their heads as to why the BOC is raising rates so quickly. Inflation is very low at 1.2%. The BOC is known and respected throughout the world as one of the most successful inflation targeting Central Banks. This reputation was earned in the late 80s and early 90s as the Bank increased and maintained very high interest rates to break the back of double digit inflation caused by the 80s stock market and credit growth booms. The effect of these rapid rate rises on real estate, borrowing costs for consumers and businesses and consumer spending will be adverse. Tembo has several ideas.

First, the national economy is experiencing a big growth spurt and GDP growth rates increased by 4.5% in the second quarter. This was largely due to strong consumer spending, made affordable by a stable and healthy job market, some modest wage gains, and cheap borrowing costs. By raising rates, the BOC expects growth to cool to more sustainable medium to long term levels while sending signals to consumers to spend and borrow more Conservatively. There is also a broader international push by Central Banks to end the era of dirt cheap money, and the BOC, in the trendsetting style its admired for, is charging ahead.

Now Creative Group September 6, 2017 No Comments

Will Millenials Achieve Their Dreams of Home Ownership

Can millennials afford to buy a home? And do they believe they ever will? A recent study conducted by Leger Marketing from real estate firm Royal LePage says yes, if they live in Atlantic Canada.

According to the online survey of 1,000 Canadians aged 25-30, 69 per cent of those surveyed in the east coast agreed with the statement “I believe I will be able to purchase a home in the next five years,” compared to 57 per cent nationwide.

This is not surprising considering the average price of any home in Moncton is just $181,361, compared to compared to $472,798 in Calgary, $843,590 in Toronto and $1,385,431 in Vancouver.

The numbers for those who agreed they could afford a home in five years were 59 per cent in Quebec and Ontario, 56 per cent in British Columbia, 50 per cent in Alberta and 51 per cent in Manitoba and Saskatchewan.

One surprising discovery from this survey is that six in 10 who were surveyed agreed that they would be willing to move to another city or suburb where property is more affordable. With the 9-5 work day in flux, more and more workplaces are adapting to remote working. This change in the workplace coincides well with these numbers.

The hurdles to owning a home can be overwhelming – but this only further enforces the importance of financial preparedness and planning. With the ever-changing housing market in Toronto, millennials will have to decide whether staying in Toronto or realizing their home ownership dreams take precedence.

Now Creative Group September 5, 2017 No Comments

Why Toronto is Immune from a Real Estate Crash

The imposition of a foreign buyer tax, stricter and more comprehensive rules and regulations, higher interest rates, and higher taxes has upended the Toronto real estate market. What was once the most dynamic sellers’ market in the history of the region in February of this year has now shifted in a much more balanced way towards buyers. A market where sellers were seeing double digit price increases and massive demand has been extinguished and now prices and sales are faltering with huge influxes of inventory hitting the market.

The talk now is of where the market will be in the medium to long term. Will prices and demand remain steady, recover, or crash? This is the grand question on the minds of professionals, buyers, sellers, politicians, regulators, bankers, and everyone else interested and affected by real estate. The best way to predict and ascertain the future is to look back to the past. The last time the market experienced a genuine, painful, and widely feared crash was in 1989. At the time speculation was rife, price growth explosive, money reasonably cheap, and demand strong.

But what triggered the ultimate inflection? What was the spark which led to a near decade long depression with a 40% real drop in prices? Ultimately, two factors broke the back of Toronto real estate. The first was a rapid increase in interest rates unveiled by the Bank of Canada to stem the inflation from the cheap money of the 80s boom and the second was a subsequently massive and sudden spike in unemployment. These two forces unleashed the early 90s recession which particularly hurt Ontario and caused 11% unemployment.

For the Toronto real estate market to crash, rates and joblessness would have to soar. The Bank of Canada has little reason to spike interest rates, as inflation is very low, and the economy is stable. Canada’s banks are healthy and sound, prices for many key commodities still remain competitive, and there are several economic sectors which are growing, particularly real estate, high tech, robotics, and advanced services. Leaving out a spectacularly sudden and damaging event, likely offshore, stability remains foreseeable in the medium to long term and jittery observers have little to fear from a full on 1989 real estate crash occurring

Now Creative Group August 29, 2017 No Comments

Canada’s Banks are Booming

Strong and sustained real estate activity nationwide, coupled with high consumer spending and a reasonably strong Canadian economy means the latest bank earnings are hitting all time records. Recently released figures show essentially all of the country’s banks generating massive quarterly profits. The first bank to disclose was RBC – generating a massive $2.8 billion quarterly profit.  The bank’s retail banking division posted a 6% increase in profits, showing that the recent increase in interest rates and the changes in the housing market did little to shake the bank’s trajectory and growth. One of the first acts the bank did after reporting the strong result was to increase its dividend by 5%, beating all expectations and fulfilling its obligation to shareholders.

CIBC, the smallest of the big 5 banks reported a $1.1 billion profit, also beating expectations and also increased its dividend. The bank recently acquired a Chicago based bank and has been expanding aggressively in the United States. Further results for TD, Scotiabank and BMO are incoming by the end of this week and next week. Analyst expectations are that strong results will be in the cards. A recurring theme among commentators and experts was to remain conservative and to brace for worse than expected news due to recent turbulence in real estate even as earnings expectations were high because of a strong economy.

The banks that did report voiced their approval of recent government measures introduced, particularly in British Columbia and Ontario, that were designed to halt rapid price growth and which have succeeded. The strong bank results underpin the general message that Tembo has repeated for the last several months; that is, that while ebbs and flows in real estate should always be expected, the fundamentals underlying pillars of the real estate sector are strong and will remain so for the foreseeable future.

Now Creative Group August 24, 2017 No Comments

Buying A New Home Vs. Buying A Resale

There are many decisions to make when beginning your search for a home in the current real estate market. Not only do you have to consider financial aspects such as your budget and mortgage costs, it is also important to consider the type of home and area that you would like to live in. There are advantages and disadvantages to purchasing both a new development as well as a resale property.

Move-In Date

From the time of purchase, new homes can take years to build and are often met with delays that prolong your move-in date. If you are looking to make a quick move, purchasing a resale home is your best option as you are able to secure a move-in date within a reasonable time frame.  On the other hand, purchasing a home that will be built within a few years from the purchase will allow the buyer to save more money over time for the down payment and closing costs. Depending on your needs and financial situation, it may be best to purchase a new development and make smaller payments until closing.  

Warranties & Costs

New construction homes in Canada are typically protected by a warranty, which will cover any costs related to issues with the construction and maintenance of the home. In Ontario, these concerns are addressed through the Tarion Warranty Program. This allows homeowners to save on costs and protect themselves financially from any damages related to the assembly of the home. Resale homes do not come with such a warranty, leaving any maintenance or fixes to the expense of the purchaser. Older homes may also require more maintenance over time, as the lifespan of the furnace and other appliances may be limited.

Customization

Depending on what you are looking to do with the home, either option may be feasible. New homes have limited options when it comes to design and available upgrades, whereas older homes can be purchased for a lower price and remodeled to meet the exact needs of the home owner. Some individuals purchase homes as investment properties, which can be renovated and resold. If you are looking to flip a house or customize your dream home, purchasing an older home may be in your best interest. Whereas others may prefer to select a model from a new development and move right into a brand-new home.

There is no definite answer to determine which type of home to purchase. Purchasing a new home versus a resale home is dependent on the buyer’s needs and preferences. Depending on the location and necessary amenities, some may prefer to purchase an older home as opposed to a new development, and vice versa.

Now Creative Group August 22, 2017 No Comments

Toronto’s Condo Market Crackles On

As Tembo previously reported in its newsletter and past blogs, the Toronto condo market is undergoing a massive upsurge in activity and dynamism. In the last 20 years, Toronto’s real estate sector has enjoyed tremendous growth in activity, prices, and supply, especially in the form of condos. The city’s previously impressive skyline is now on track to surpass many American megacities traditionally viewed as architecturally and structurally more imposing, such as Chicago’s. A huge number of the new skyscrapers and high rises built in the city are condo buildings.

New figures show astronomical price increases in many Toronto neighbourhoods, particularly in Scarborough, where some prices increased over 60% from a year ago. As the price of detached homes continues to steadily increase with demand remaining strong, many first-time buyers continue to turn to the condo market to begin their respective real estate journeys. Despite a vast slew of new factors impacting the market, condos continue to be available in strong numbers and are far more affordable than detached, semi-detached homes or townhomes.

The most dynamic price growth was seen in much of Scarborough, north-west Etobicoke, and along the downtown core and lakeshore areas of the city. While 20-40% price growth was common throughout the city, it is important to note that base prices a year ago for many condos in the city’s periphery were very low, partially explaining the explosive nature of the price increases. Prices increases were most modest in the city’s midtown area.

The supply of condos continues to increase and generally is meeting demand as approvals and new construction continues to improve market supply. Another important factor is that many millennials are now in a position to afford an entry into the real estate market, and are turning to condo purchases to start building equity. Investors, foreigners, and retired, affluent baby boomers are also buying condominium units.