The federal government is expected to tighten mortgage rules in an effort to cool the red-hot housing markets in Toronto and Vancouver, CTV News has learned.
The new regulations will increase the minimum down payment required to buy a home for more than $500,000, with portions beyond that amount requiring a 10 per cent down payment. The down payment on the first $500,000 will remain at five per cent.
For example, a home costing $700,000 would require a $45,000 down payment – a five per cent down payment on the first $500,000, added to a 10 per cent down payment on the remaining $200,000.
The regulations are expected to take effect in early 2016.
Buyers shopping for homes below the $500,000 mark will be unaffected by the new rules.
The announcement is expected from finance minister Bill Morneau sometime Friday morning. The government is expected to stress that the new rules are designed to foster equity and dissuade cash-strapped buyers who may be seduced by low interest rates.
The decision is based off research by the C.D. Howe Institute, an independent think tank.
The move is expected to take pressure off the Canada Mortgage and Housing Corporation (CMHC), which offers mortgage loan insurance for properties valued below $1 million.
Since the 2008 recession, the federal government has made it more challenging for Canadians to obtain CMHC-insured mortgages.
For homebuyers with a down payment of less than 20 per cent, the government decreased the maximum amount of time allowed to pay off a mortgage to 25 years from 40 years.
The move was intended to dissuade borrowers from making riskier purchases and instead encourage them to invest in less expensive homes.
In a previous post I talked about the basics of mortgage debt ratios—the calculations lenders use to determine if you qualify for a mortgage. This prompted this reader question:
Q: If I own a rental property, which debt ratio does that get included in? GDS or TDS or both? In other words, which debt ratio do you add the rental property mortgage payment, rental income, taxes and heat to?
A: Good question. While the short answer is TDS (the total debt service ratio), the mechanics of how a rental property is assessed when applying for a mortgage are important. As such, I thought it would be a good idea to provide a brief explanation of how lenders use rental property income and expenses when you apply for a mortgage.
In general, lenders will apply two calculations when examining a rental property:
Debt Service Coverage ratio
This is calculated by dividing the Net Operating Income (all rental income minus all reasonable operating expenses) by the Debt Service (cash required during a specified time period to cover the payment of interest and principal on a debt). For example, if your property’s rental income is $2,000 each month and it costs you $500 in expenses along with a $1,200 monthly mortgage payment, then your DSCR would equal 1.25 ($2,000 – $500 / $1,200).
Most lenders want to see a minimum 1.1% return on a rental property—so for every dollar you spend on the rental property, you earn at least $1.10 in income.
Rental offset rules
The lender will use 50% to 70% of the rental income to offset the principle, interest and tax mortgage payments (PIT) you make on the property. So if your property earns you $2,000 per month, the lender will only account for $1,000 to $1,400 in income to offset the PIT payment. To see how this works, let’s assume PIT payments equal $1,425. Since you earn $2,000 in income, and the lender uses a 70% rental offset rule, you deduct $1,400 from the $1,425 PIT payment. The remaining $25 shortfall will be added to your debt—thereby increasing the debt portion of your total debt service ratio.
Unfortunately, though, there is no standard. Some lenders use debt service coverage ratio while others use rental offset rules. The best approach is to talk to a mortgage professional to determine your best options.
Sometimes, it’s helpful to learn from your mistakes. Usually, it’s much better to learn from someone else’s, especially when it comes to something as important as selling your home. Here are some common mistakes you really don't want to make:
1. Trying to sell your home yourself In this DIY era, the urge to try to sell your home yourself to save money can beckon like the smell of oven-fresh cookies at an open house. Resist. Working with a licensed agent helps ensure you’re not leaving money on the table as a result of an off-target listing price or a mistake in the many steps that lead to a final sale. Sell your sofa yourself online. List your home with a professional.
2. Picking the wrong REALTOR® Not all agents are equal. Just because your college buddy dabbles in the industry doesn’t mean he’s the best guy to sell your home. You want experience. You want to work with an agent who has a depth of knowledge. Invite your buddy to the housewarming party. Find an agent who can truly guide you.
3. Pricing your home too high Sometimes it’s good to aim high. But when you’re setting a price for your home, it’s better to be smart than overly eager. Listing your home at a price beyond the true market value and then letting it drop several times can lead to a lower sale price than you’re hoping for. A savvy agent can help you set the best, most competitive price for your home based on other recent sales and local market trends.
4. Sweating the small stuff Keep things in perspective. You’re in the process of one of the largest business transactions you’ll ever make. It's easy to get distracted by dollars adding up from pre-sale repairs or post-inspection demands, but don’t let the cost of replacing a closet door, servicing the furnace or fixing a stairway banister derail you. After you reach the finish line on your home sale, you'll focus more on the rewarding outcome and quickly forget about the smaller frustrations.
5. Getting emotional Yes, your children may have learned to walk on that carpet, but a heartfelt story isn’t going to win the hearts of buyers. With so much personal history tied to your home, emotions can cloud judgment. An agent can help you make smart, strategic decisions.
After weeks (or even months) of searching for a home, you’ve finally found the perfect home. Unfortunately, you have excellent taste and there are five, 10, maybe even more offers on the table. If you’re caught in a bidding war, there’s more you can do than cross your fingers.
Here are 3 strategies that may help turn the odds of winning the war in your favor.
1. Help the seller out
Do whatever you can, within reason, to make the decision easier for the seller. This can include being flexible on the closing date to accommodate the seller’s moving plans. And although it’s not unusual for buyers to ask a seller to pay for a portion of their closing costs, now may not be the time to press your luck. If you're able to cover your own closing costs and you don't ask for seller assistance in your offer, you definitely could stand out. Also, the greater your down payment, the more secure a seller may feel that your mortgage financing will close with no problems. That's not to say you can't compete against someone who is offering a larger down payment; sellers will weigh various factors as they review offers with their agent. Overall, limiting your requests of the sellers and submitting your highest and best offer are the best approaches to being competitive.
2. Be prepared to act fast
Both you and your agent should be constantly monitoring homes for sale so you can evaluate potential homes as quickly as they're posted. Research the properties as much as possible before your showings so you can be prepared to make an offer on the spot if the home is a good fit. Talk with your agent about adding an escalation clause into your offer that automatically increases your bid if other buyers come in. Finally, include a pre-approval letter from your lender stating that you qualify for a loan in the amount of your offer.
3. Don’t be shy There isn’t always a lot of cash separating the top bid from the next closest contenders. For a seller with a strong emotional attachment to their home, an extra thousand dollars might mean less than passing their house along to the right buyer. Draft a letter describing why you fell in love with their house. Is it the perfect size for your growing family? Do you want to bring the backyard garden back to life? It just might give you the edge over the competition.
If you’re looking for advice tailored to your specific situation, please get in touch with me: Wes Smith at 250-758-3700 or via email at firstname.lastname@example.org
Plenty of homeowners are relying on a basement suite or a laneway house to help get them into Metro Vancouver’s hot housing market.
Mortgage broker Sherlock Yam says changes to Canada Mortgage and Housing Corporation (CMHC) rules coming at the end of September could be another big help for those looking to legally rent out part of their newly purchased home.
“Previously, CMHC rules allowed only 50 per cent of the rental income to be added towards qualifying for your mortgage,” said Yam. “Now it’s increased to 100 per cent.”
If a secondary unit brings in about a $1,000 in rent monthly, being able to include all of it, rather than just half, would add another $6,000 in household income a year. That equates to about $25,000 of extra buying power added to a mortgage.
The rule change is also intended to add rental units to an already strapped supply, even pushing potential sellers to include rental opportunities to attract this new group of buyers.
Overall, the added boost may be even better than recent interest rate cuts.
“For those people, this has increased their borrowing power by more than they benefited from that recent Bank of Canada change,” said Tsur Somerville, director for the Centre for Urban Economics and Real Estate at UBC.
Still, Sommerville says don’t expect these new buyers to drive Metro Vancouver’s housing market much higher.
“The thing is that it’s got to meet all the other CMHC requirements,” he said. “So it’s people putting less than 20 per cent down; people buying a house that’s $1 million or less. When you start doing all those sorts of things, I’m not sure the number of people is really huge.”
For those who do apply, the added cash from renting out might just be enough to finally buy in
Synthetic lawns are becoming more popular around the Lower Mainland, offering easy upkeep, year-round green colour and a solution to battling moles, chafer beetles, and the effects of animals relieving themselves.
“The feedback has been overwhelmingly positive,” said Paul Gabrlik from Precision Greens. “Nobody has to worry about the ugly grass outside anymore, there’s no smell, there’s no maintenance costs involved.”
But it’s not just stratas and residents that are making the change. The city is also looking at cost effective alternatives to upkeeping grass, concrete and asphalt, like using recycled rubber mats, costing about $200 per square meter.
“We use it in situations where there are tree roots,”said Taryn Scollard, director of streets for the City of Vancouver.
“Instead of a tree popping up and ruining the asphalt or the concrete, we are able, with those mats to pull it up and regrade it and set it down again.”
One of the main concerns over the synthetic lawns and rubber mats is about the potential odour that may be left behind after an animal relieves itself. So far the city says it has not had any complaints, however, another worry is the environmental impact.
“There’s no runoff or anything involved from any of the products,” said Gabrlik. “There’s no fertilizers at all, which have been known to leak into the water systems.”
And while some may think the city loses some charm from going to plastic, everyone Global News spoke with agreed it is nice to see a perfect green lawn year-round.
Ottawa, ON, September 15, 2014 - The Canadian Real Estate Association (CREA) has updated its forecast for home sales activity via the Multiple Listing Service® (MLS®) Systems of Canadian real estate Boards and Associations for 2014 and 2015.
The deferral of sales and listings during an extraordinarily bleak winter delayed the start to the spring home buying season earlier this year. This deferral boosted activity in May and June as properties were snapped up after finally hitting the market, particularly in markets with a shortage of listings.
Although this boost was and still is expected to be transitory, sales have yet to show signs of cooling as activity strengthened slightly further over the summer. The increase reflects continuing strength in home sales among large urban markets that initially drove the spring rebound together with gains in markets where activity had previously struggled to gain traction. Lowered mortgage interest rates supported this trend.
Sales are now forecast to reach 475,000 units in 2014, representing an increase of 3.8 per cent compared to 2013. This is upwardly revised from CREA’s forecast of 463,400 sales published in June, and reflects stronger than expected sales in recent months. Even so, sales activity is expected to peak in the third quarter as the impact of a deferred spring dissipates and continuing home price increases erode housing affordability.
This would place activity in 2014 slightly above but still broadly in line with its 10-year average. Despite periods of monthly volatility since the recession of 2008-09, annual activity has remained stable within a fairly narrow range around its 10-year average. This stability contrasts sharply to the rapid growth in sales in the early 2000s prior to the recession.
British Columbia is forecast to post the largest year-over-year increase in activity (11.9 per cent) followed closely by Alberta (7.7 per cent). Demand in both of these provinces is currently running at multi-year highs.
Activity in Saskatchewan, Manitoba, Ontario, Quebec and New Brunswick is expected to come in roughly in line with 2013 levels, with sales increases ranging between one and two per cent in the first three provinces and edging lower by about one per cent lower sales in the latter two provinces. Sales in Nova Scotia and in Newfoundland and Labrador are projected to be down this year by 3.9 per cent and 5.2 per cent respectively.
Mortgage interest rates are expected to edge higher as Canadian exports, business investment, job growth, and incomes improve. These opposing factors should benefit housing markets where demand has been softer but prices have remained more affordable. Sales in relatively less affordable housing markets are likely to be more sensitive to higher fixed mortgage rates.
National activity is now forecast to reach 473,100 units in 2015, representing a decline of four tenths of one per cent. Sales activity is forecast to grow fastest in Nova Scotia (+3.3 per cent), followed by Quebec (+1.3 per cent) and New Brunswick (+1.3 per cent). Alberta is the only other province forecast to post higher sales next year (+1.0 per cent).
In other provinces, activity is forecast to decline in the range of between one and two per cent. In British Columbia and Ontario, this trend reflects eroding affordability for single family homes.
The national average price has evolved largely as expected since the spring, resulting in little change to CREA’s previous forecast.
The national average home price is now projected to rise by 5.9 per cent to $405,000 in 2014, with similar price gains in British Columbia, Alberta, and Ontario. Increases of just below three per cent are forecast for Saskatchewan, Manitoba and Prince Edward Island. Newfoundland and Labrador is forecast to see average home price rise by about one per cent this year, while Quebec is forecast to see an increase half that size.
Prices are forecast to be flat in New Brunswick and recede by almost two per cent and Nova Scotia.
The national average price is forecast to edge up a further 0.7 per cent in 2015 to $407,900. Alberta and Manitoba are forecast to post average price gains of almost two per cent in 2015, followed closely by Ontario at 1.3 per cent. Average prices in other provinces are forecast to remain stable, edging up by less than one percentage point.
Kelowna, B.C. (September 8, 2014) – RE/MAX of Western Canada is renewing the organization’s commitment to our future community leaders by offering $16,000 in bursary funds through its annual Quest for Excellence Program. One recipient—in addition to his/her bursary—will receive a hot air balloon ride for two.
The Quest for Excellence Program recognizes the pursuits in leadership and community contributions of Western Canadian students. High school students graduating in 2015 from British Columbia, Alberta, Saskatchewan, Manitoba, Yukon and Northwest Territories are encouraged to write an essay to convey the contributions they have made to enrich the lives of others and their communities: Through leadership, motivation, volunteering and participation in charitable events or fundraising.
“It’s inspiring to see these young adults making such a difference in their communities,” says Marie Sheppy, Senior Coordinator, Corporate Affairs, RE/MAX of Western Canada. “We’re pleased to have the opportunity to recognize their efforts and assist them in their future endeavours.”
Sixteen winners will be selected from entries received online at remax.ca. Each winner will receive a $1,000 RE/MAX Quest for Excellence bursary. All 16 bursary recipients will be placed in a draw and one lucky student will receive a hot air balloon ride for two from the closest major city. The application deadline is March 9, 2015. Award recipients will be notified in April 2015, with a formal presentation at the students’ commencement ceremonies.
“We’re once again honoured to announce our Quest for Excellence Bursary Program to reward some of the outstanding young adults throughout Western Canada. Their efforts have benefitted their communities and this is our way of recognizing that,” says Elton Ash, Regional Executive Vice President, RE/MAX of Western Canada.
The budget announcement quietly slipped in changes to government-backed mortgage insurance, including reductions to the amount of new guarantees CMHC will provide.
“The Government continues to adjust the housing finance framework to restrain the growth of taxpayer-backed mortgage insurance and securitization,” the budget report states. “These measures will support the stability of the housing sector and the financial system by increasing market discipline in mortgage lending.
“They will also reduce taxpayer exposure to the housing sector without compromising the availability of reasonably priced mortgages.”
This should come as no surprise to a number of brokers, with Finance Minister Flaherty recently stating CMHC has evolved past its initial intention.
“Regrettably, CMHC became something rather more grand, I think, than it was intended to be,” Flaherty told reporters in December. “We’ll see over time what that role should be.”
Of course, the federal government has adjusted the rules for CMHC mortgage insurance four times in the past five years, including establishing a maximum amortization period of 25 years for mortgages with down payments less than 20 per cent.
However, Tuesday’s budget also announced a number of further changes to the Canadian Mortgage and Housing Corporation, which includes reducing the amount of new guarantees CMHC is authorized to provide.
•For 2014, Canada Mortgage and Housing Corporation (CMHC) will pay guarantee fees to the Receiver General to compensate the Government for mortgage insurance risks. This will align CMHC with guarantee fees paid by private mortgage insurers.
•For 2014, CMHC is reducing its annual issuance of portfolio insurance from $11 billion to $9 billion.
•The Minister of Finance has reduced the amount of new guarantees that CMHC is authorized to provide under its 2014 securitization programs to $80 billion for market National Housing Act Mortgage Backed Securities and to $40 billion for Canada Mortgage Bonds.
• A new legislative framework for covered bonds is now in effect. This framework has created a fully private source of funding using only uninsured mortgages as collateral. It has been recognized internationally for its high standards. Since July 2013, Canadian lenders have successfully issued more than $14 billion in covered bonds in three different currencies.
• The Government has consulted stakeholders and will bring forward measures to implement Economic Action Plan 2013 initiatives to tie portfolio insurance to the use of CMHC securitization vehicles and prohibit the use of government-backed insured mortgages as collateral in securitization vehicles that are not sponsored by CMHC.
Home sales in BC were up 6.6 per cent in March compared to February, on a seasonally adjusted basis. However, this statistic belies the fact that the housing market is in the midst of a cyclical low.On a per capita basis, consumer demand currently mirrors the low level experienced in the late 1990s. Only during the height of the financial crisis were home sales lower.
A little over a year ago consumer demand began to trend lower. This trend became a full scale downshift last summer as tighter credit regulations on high-ratio mortgages eroded affordability and reduced the purchasing power of many first-timeand early move-up buyers. Reducing the maximum amortization from 30 years down to 25 years had a much larger impact than any of the previous changes. This downward shift in consumer demand has bled into 2013. However, the current pace of sales is likely to be short-lived as market fundamentals suggest that some pent-up demand is latent.
2013 can be characterized as a transition year. The global economy is expected to post much stronger growth in 2014/2015, with more robust domestic demand emanating from both China and the US. The resulting spin-offs of employment and wage gains will underpin housing demand.
- Cameron Muir, British Columbia Real Estate Association Chirf Economist
OTTAWA – Canada's housing market continues to show signs of stability as the number of homes sold so far this year has come in slightly higher than projected, a possible signal that the market is set for a rebound in 2014, according to the Canadian Real Estate Association.
The industry group representing Canadian realtors reported Monday that although it still expects fewer sales to be logged this year than in 2012, the decline will be smaller than what was predicted in March.
Overall, it forecasts that there will be more sales next year than in 2013 and 2012.
Douglas Porter, chief economist with BMO Capital Markets, said the figures show that the doom and gloom that has been anticipated for the Canadian housing sector looks like it's been delayed — at least for the near future.
"Overall, this is relatively encouraging news," he said. "If anything, the surprise has been how healthy the housing market has been."
The real estate association is now estimating that 443,400 units will be sold in 2013, a decline of 2.5 per cent from 454,573 in 2012. It had previously projected a decline of 2.9 per cent from 2012.
The group reported that sales activity began to pick up at the end of the first quarter and accelerated in the second quarter.
That has been the experience in Waterloo Region. Agents with the Cambridge Association of Realtors had there best May ever last month, selling 351 homes, or 21 per cent more than in the same month a year ago.
In the Kitchener and Waterloo area, sales surged 16.1 per cent to 765 compared to May 2012.
Nationally, the real estate association projects that 2014 will see a strong rebound, with 464,300 housing units sold — about 9,700 more than last year.
It said the drop in transactions in the second half of 2012 can be attributed to stricter mortgage rules for lenders and buyers introduced by the federal government last summer.
"It affected a lot of first-time homebuyers, particularly in some of Canada's more expensive markets," said Gregory Klump, the association's chief economist. "We had a pretty substantial decline in sales activity."
The association also reported that last month, there were 51,764 residential properties sold across Canada, down 2.6 per cent from May 2012.
On a month-to-month basis, May showed a 3.6 per cent increase from April with 37,792 units and 36,473 units sold on a seasonally adjusted basis in the first two months of the second quarter — the largest month-to-month gain in more than two years.
Porter said the stronger-than-expected figures are another indicator that the Canadian economy is faring well.
"The overall message is that there is still some strength in the economy. This has gone hand in hand with better job news and some more encouraging reports generally," he said.
"I wouldn't say the economy is booming by any stretch of the imagination but I think the main point is that it's holding up better than many had expected as recently as a couple of months ago."
The association also reported that its home price index was up 2.3 per cent in May, compared with a year earlier. That was slightly better than April's index of 2.2 per cent but still near two-year lows.
The May national average price, for all types of property in major markets across Canada, was $388,910 — up 3.7 per cent from a year earlier. Almost all of the local markets that make up the average saw year-to-year increases.
In the Kitchener and Waterloo area, the average price rose 6.9 per cent to $333,288 last month. In Cambridge, the average price was stable at $311,361.
I've just listed my favourite house in all of Nanaimo! The Kennedy House Bed and Breakfast is 100 years old this year (the house, not the B&B) - and is simply an amazing example of turn-of-the-century architecture. More info HERE.
In the survey’s “aided awareness” results, nearly 90 percent of U.S. respondents recognized RE/MAX when they read a list of real estate brand names. In Canada, the percentage was even stronger at nearly 97 percent.
But the ultimate test of a brand’s strength is “unaided awareness,” when respondents are asked to name companies without being presented with a list of names. In this portion of the survey, RE/MAX was mentioned more than any other real estate brand. RE/MAX also was the brand most often mentioned first – giving it the highest top-of-mind awareness in both the U.S. and Canada.
The phone survey was conducted between November 2012 and March 2013 by MMR Strategy Group. Respondents included recent homebuyers, sellers and those who intended to buy or sell a home. In the U.S., the sample size was in excess of 2,500. A similar methodology was used in Canada with a sample size of more than 600. In both countries, the results were statistically significant to a 95-percent confidence level.