Canada
Changes occurring in the Canadian mortgage market.
Firstly we need to understand the changes within the real estate business before we can understand the changes in the Canadian mortgage market. The mortgage business changes have taken place due to a multitude of factors which include the economy and the housing situation. Looking at affordability measures that examine payments on houses to income show us the extreme change the housing business suffered over the last year or so. There is no distinction when examining the charts on property prices, rental prices and price-to-income. Combining these figures together there has been a fall in property prices up to the start of 2009, after that house prices seem to be recovering. Sparse supply of properties on the market coupled with sales recovery have seen prices for homes increase drastically. We have created an article called Canada and International Housing Markets, for you read, if you would like more information on the changes within the housing prices around the world.
Refinements to the mortgage business
What changes took place within the Canadian mortgage market? Canada is one of the few countries that chose to pursue mortgage innovations while other places have detracted from such actions. Early 2006 the federal government made mortgage insurance more liberal and thats when the developments started in the mortgage market. For the innovations to take place the market demanded a sound and pro-active banking system with bank capitalization amongst other things. We can already see the mortgage business changing even if the banking advancements were a natural progression. Long term there is still the uncertainty of defaulting on a mortgage, but short term it is making property more affordable to many people. The innovations have had a positive affect on the property slowdown of 2008, whilst not stopping it completely it certainly slowed it down.
Mortgage period and length of time to pay the instalments.
Up to three years ago the only mortgage amortization terms you could obtain was for 25 years. But after the alterations in 2006 happened, 30, 35 and 40 year amortizations became accessible At this time 18% of mortgage terms are for more than 25 years, and around 10% are for 35 to 40 years, according to professionals at the Scotiabank group. Mortgages taken out that are larger than the 25 year terms, over the last year, make up nearly 50% of new mortgages, and of that 50%, you will witness approximately 60% of these are for the 35 and 40 year terms. Forty year mortgages unluckily have no way of being insured, as this choice was withdrawn from the insurance market. In July 2008, AIG joined CMHC and Genworth in declaring the end of insured 40 year amortizations and 100% mortgages. Mortgages over 40 years are still available within the mortgage market, but people must be aware that these are uninsured mortgages. For the rest of the report entitled Mortgage Market in Canada visit our website.
Interest Rates to Be Held at Their Current Level
The Bank of Canada is persisting with its pledge to hold interest rates at the current amount of 0.25% after the latest rate announcement at the end of October. Professionals concur it is not the time to modify it.
The figure has been kept at record lows for half a year now and the Bank wants to keep it motionless at least till June 2010. As any real estate agent would tell you, one of the major reasons why the Canadian housing market has seen a good rebound from the recession, is the attractiveness of these low interest rates, which is allowing purchasers to buy properties.
Sadly there is always a few that call for interest rate increases. While we are seeing a massive bubble forming around the world this is making individuals decidedly uncomfortable. By boosting the rates of interest, many reckon this will stop the bubble from bursting. Many experts still believe that in spite of increasing prices and these bubbles forming it would be a mistake to increase interest rates at this moment in time.
We need to look at the reasoning behind why the experts don’t believe the interests rates should get higher and the main reason is that although the BoC indicated a 2% rise in the third quarter of 2009 the actual GDP growth is completely different. One of the other factors concern the domestic industry which is still observing very high levels of trade deficit and therefore a slower improvement.
At this time there is also no evidence that leveraging is on the increase, whilst this has its risks, it’s also a sign that the market is more sturdy. Inflation is close to -1%, leaving all fears behind for the present. Ultimately, the feared property market crash doesn’t seem to be in evidence. Real Estate prices are rising steadily with a good supply on offer on realtors books. With the property downturn last winter there was a backlog of properties which are now selling, as the demand is greater so the prices rise.
Whilst there are never any guarantees it is fairly certain that the BoC will fulfil its pledge to keep the interest rates low for a good few months yet. At least now the condo buyer can feel confident in purchasing their new property.
Is the Canadian First Time Home-Buyers Tax Credit Helping Stimulate the Housing Market?
One of the most emphasized incentives in the governments plan to help with the housing slump was the First Time Home-Buyers Tax Credit. In comparison to the USA tax incentive plan, the Canadian tax credit seems to come a poor second. So do we find it just one big laugh?
Let’s start by looking at both the tax credits on offer. The Canadian Federal government are offering a Tax Credit proposed on a $5,000 deductible. If you want to purchase property in Canada and haven’t owned housing in the last four years, then this deductible is multiplied by 15% - total net of $750.
On the other hand, the American tax credit can be as high as 10% of the real estate’s value, to a maximum of $8,000. In the US the amount is removed from the buyer’s income tax (owing) whereby in Canada it’s deducted from the tax base. When the tax owing doesn’t go over the maximum plan then the new property buyer can look forward to the money being cashed back to them. While in Canada a person can’t have owned a property for the 4 years before, in the US this is only 3.
While the Canadian real estate market bounce back is credited by experts generally to the Bank of Canada interest rate cut, the (still quite shaky) recovery of the American market was indeed fueled by their gigantic tax credit. The American incentive reduced the pressure of finding a down payment for a property and paved the way for first time buyers to get on the housing ladder. Seeing the benefit of the US tax credit, the first thought is shouldn’t Canada be looking more carefully at these options?
What Canadians should ask themselves, is “do we require it”? The force of the Canadian recession vs the US recession on our specific housing markets has been radically different. Many short sales and foreclosures have been seen in the US which inundated the market, although in Canada the hardest hit were real estate agents and investors due to the quick rebound.
Looking at the fiscal situation we also see a variance. In the US there is a enormous budget loss and with over a million taxpayers claiming this aid it impacts on lost tax revenue.
To study the rest, please read our original article “Is the First Time Home-Buyers Tax Credit Really as Good as It Sounds?” Thank you.
Canada’s Economic Action Plan: Property
With the economic slowdown worldwide many countries as well as Canada have special policies to deal with this. This is known as Canada’s Economic Action Plan. Incentives have been implemented to the tune of 90%, which is all well and good, but now we need to zero in on the housing sector.
Economic Action Plan is a combination of hundreds of smaller projects supplying fiscal stimulus to our economy. This stimulus accounts for over 4% of Canada’s economic performance, otherwise known as GDP, and is one of the largest in the globe.
Cutting down the tax responsibility
Lowering taxation is a big consideration of the Action Plan. The tax lowering inducements related to the real estate market are: - Property upgrade tax credit: $2.5 billion (for the year 2009-2010). - Expansion in Property Buyers’ Plan withdrawal restriction: $15 million. - $175 million allocated for First-time Home Buyers’ Tax Credit.
These three tax discount inducements have already been smoothly carried out and millions of Canadian citizens already benefit from some of these. First-time Home Buyers’ Tax Credit was one of the economic stimuli (however not the most important), that fueled a very fast real estate rebound that we observed from this spring all over the country. Furthermore, the house renovation credit has helped people to increase the value of their property and strengthen their position in the very competitive environment of the resale housing market and improved the overall quality of housing stock.
Ideas on how to stimulate the housing builds
In spite of the fact that some realtors specializing in resale homes are not too excited about new developments, in the long term it is definitely critical for a healthy real estate environment and also for real estate agents themselves. Including the tax relief mentioned already to boost and encourage the construction industry and private house ownership, direct spending on construction has further added stimuli which benefits the whole economy.
There are approximately 7,000 housing and infrastructure projects generated from the plan, of which more than 4,000 have already begun. There is over 1 billion dollars (for the fiscal year 2009-2010) being allocated for about 300 social housing projects.
But the actual overall funding for this sector is in excess of $9.5 billion. Realtors are finding these actions encouraging due to the property market impact. Infrastructure projects affect the value of property in neighbourhoods in their closeness (more details about such influence can be found in our recent article about Move Ontario). Resale and rental markets are affected by social housing which also provides manageable homes to those who have a low income.
The distance of projects is something that some realtors find important, when their business is directly influenced by these sort of neighbourhoods. However, there is also more international impact on the labor market – construction projects supply thousands of jobs and enhance the financial situation of the workers, thus raising their capacity to finance their own homes.
Performance of the Plan
Canada’s economy has seen the property market become it’s compelling force, hence it being one of the first areas that have seen a rebound in the current slump. The improvement to the housing market is believed to be evoked by the monetary policy according to many realtors. Nonetheless, monetary stimuli also plays a piece. The national economy is shown by a healthy housing market, so any monies placed into the property market, however expensive, will show as a flourishing economy.
Overhaul of Public Transport in Toronto: Hurray!
A major public transport shakeup has been expected by the public in the Ontario region since 2007. Increasing subways, trains, bus lines and selected highways are just a few of the 52 transit programs in the 12 year ‘MoveOntario 2020′ plan. The biggest beneficiary is expected to be GTA. Real estate demand is expected to soar in the affected areas with a decisive effect on the environment being seen by those that live in Toronto.
Real Estate: Advancing Values
Convenience to a property is an important variable when working out property prices by real estate agents. Property values near railway stations will elevate according to various studies. For example in Portland, houses within 500m area of light rail way station sold by over 10 per-cent more than houses located further away. Within a recorded half-mileradius of new stations there will be a positive boost in property prices.
The genuine environmental impact: bettering the air quality
Damaging segments of exhaust gases pollute our bodies. Long term these gases cause serious disease and possibly early death. The parts of the body most affected are the lungs, heart and veins.
Pollutants and fine molecules enter our body as we breath. As air is not pure these molecules stay in our lungs causing irritation and in some cases irreversible damage. Respiratory diseases such as asthma, bronchitis and chronic respiratory disease can be caused by pollutants in the air. It can lead to blood clots, heart attacks and a briefer lifespan. Although the research still continues, there are about 1,700 early deaths grouped to the air pollution in Toronto every year.
The affect on drivers
Approximately 300 million car trips will be reduced by the restructuring plan which will cut greenhouse emissions. But will this really work? Is this really the best idea for cleaner air? Every day drivers must not be neglected with this project although the aims are to pin point on the public transport system. The project will extend the capacity of railways, bikers and pedestrians, as mode of transport. Traffic jams are common place amongst road users, the average Toronto motorist spending approximately 67 hours per year stuck in them. Although different means of transport a congestion study shows that in 20 years cars will still form 70% of all journeys in Toronto. (Source: http://www.hastebc.org/haste-news/torontos-war-cars). For instance, I’m pretty sure that the majority of my colleagues working in Toronto real estate will never give up their cars no matter the cost or availability of public transport system.
Since the stop-and-go traffic makes far more exhaust gas than idling, any project claiming its aim is to better the air condition has to include ideas eliminating congestion and increasing traffic flow in general. Or maybe the way to go is to find incentives in the recent plans of Israel or Denmark. The electromobile vehicles are massively endorsed by massive networks of charging stations throughout the country and vehicle exemptions. GTA should not rely solely on developing the quantity of the public transport system. It has to answer the needs of those who chose cars as their primary means for transportation.
Toronto Real Estate Market: Fast Recovery
The real estate bubble in the USA burst about two years ago. As a result, people interested in the real estate market in Canada came up with a query: “How will the things in real estate market in Toronto or Canada be developing from now on?”
The worries were based on two main concepts. One of them is the intensive attachment between the Canadian business and real estate market and the conditions in the USA. The second argument is originating from the progress of the real estate market in Canada between the years 2006 and particularly 2007. The numbers showed a potential for a similar bubble to occur here. Now let’s look at things nearly a year after that.
The situation around the turn point of years 2008/2009 reinforced the point of view of many pessimists, opposite to us, optimists. The sales numbers from each month demonstrated a great drop, which culminated at -47% in comparison to January 2008. Now we can say that Canada has been hit by the “depression panic” from fall 2008. The property market almost froze, because most people were hesitant about making any crucial financial decisions. Under these circumstances, some “experts” prognosed Canada facing similar collapse as in the USA. Anyhow, the truth doesn’t confirm these prophecies. Let’s focus on the 2009 numbers.
Number of sales and year-to-year change
The most representative and closely monitored indicators. Looking at these indicators, it is evident how the business froze in during the winter months. Nevertheless, the sales in June jumped to more than four times of the volume in December. Sales began to grow again in May 2009 compared to May in the previous year. And the June figures demonstrated clearly that the Toronto real estate market is back out in the clear.
Days on market
Another key characteristic. While the previous ones illustrate the bulk of the market, Days on market show us the speed and freshness. It’s the second side of the same coin – the overall size of sales can’t tell you whether your home will be stuck on the market or not. During the hardest period in January, it took just 14 days more to sell your property. In comparison to other cities such as South Florida or Detroit, it shows that our market was still quite working, because there it took even 120 - 150 days to sell a home.
Active listings flow change
This figure expresses the mood of the housing market. While growing inflow of listings usually means owners are scared of price decline and want to save their investment, opposite flow means we all think now is the favourable time to buy. This figure is able to foretell the future of other attributes - we saw positive change in listings flow after January as a market turn signal.
Average price
This is the figure that my real estate clients usually consider as crucial. Usually, one of the largest items on people’s property list is their house, which means that every market move can result in the owner getting thousands of dollars more or less. It was not until April 2009 that the price decline from the previous autumn was overcome.
Why the outcomes are so positive?! We can still find bad economic news nearly every day. So why has such a rapid recuperation of the real estate market occurred? We can name two main factors:
1. Failed expectations
A lot of Canadian inhabitants supposed their housing market would collapse, as they saw the situation in the USA. Anyway, the major cause of the United States problems was in the subprime sector, and we have to realize this. Few defaults at the start provoked a chain reaction. Since the prices decreased, foreclosures and short sales were not covering toxic mortgages and pressed the banks to throw more and more foreclosured properties on the market and forced the prices more and more down. Very small subprime sector with a small amount of foreclosures and healthy (I am not afraid to call it extraordinarily healthy) financial system secured the Canadian real estate market. So the home owners can sleep tight, being aware of all this.
2. Stabilized economy and buying opportunities
Now we will shortly interpret the figures about inflation, unemployment, GDP predictions and interest rates. Housing market largely depends on this figures, as follows from real estate prices analysis. Despite the fact that these figures concerning employment or economic growth could look even much better, we can be quite relaxed: our economy is far from a collapse, it is only slowed down, in a stagnation period. This was another reason to stop the real estate panic from winter.
Conclusion and the future
Not only the real estate market in Toronto survived the negative psychology in winter, but it has got well very quickly and shows again healthy growth; condo resale market can be even called hot right now. Low interest rates and reasonable prices after “one year break” present terrific opportunity especially to first time buyers. Now it is also great period for investors to pick some cherries, as their prices still haven’t recovered. Sellers can be calm too – the market is fast and their home will be sold probably within a month for a good price. In the following couple of years, rapid price burst and bubble creation are quite unlikely, due to the pertaining level of uncertainty and slower labor market. As the market grew exceptionally fast in June (+27%), it is clearly getting to catch up for the previous bad months and soon it will probably be stabilized again. Even in wild times, Toronto housing market represents a solid base for the economy of the whole Ontario region.