Mortgage rates are expected to remain at roughly their current level through to the end of 2020 according to a new forecast.

The British Columbia Real Estate Association’s Economics team says that, notwithstanding any major changes to the economic landscape, the 5-year qualifying rate is set to remain at 5.19% in the fourth quarter of 2019 with the 5-year average discounted rate at 2.77% (down from 2.86%).

Falling bond yields in the third quarter have helped reduce the 5-year contract rate with some fixed-rates of as low as 2.25%. However, those borrowers that are subject to the B-20 mortgage stress test will see the qualifying rate hold steady despite the lower rates offered by lenders. The lack of variation in the qualifying rate is “a puzzle” the report says.

BoC on hold
BCREA Economics does not see the Bank of Canada making any changes to interest rates in the near term but notes that major changes in the economy may prompt a cut. For now though, employment and inflation data support a hold-steady for monetary policy.

The report calls for the Canadian economy will post trend growth of about 1.8% in 2020, though “significant downside risks remain due to elevated trade tensions and their consequent impact on exports and investment.”

With the electioneering gathering pace, two real estate and mortgage industry bodies have welcomed some recent pledges by the federal parties.

Toronto Real Estate Board says that it is pleased that parties are making housing affordability a key part of their election campaigns, especially the Liberals’ commitment to expanding the First Time Home Buyers Plan and the Conservatives pledge to reform the mortgage stress test and increase housing supply.

“Housing affordability is one of the most important issues facing Canadians. We are glad that the federal political parties are acknowledging this with their respective plans. Two key issues that TREB believes have negatively impacted affordability are the federal mortgage stress test and mortgage amortization periods. TREB has been strongly calling for changes to the federally imposed mortgage stress test, since it was imposed, and for a 30-year amortization period for insured mortgages to be re-introduced, to give home buyers more flexibility and assist with affordability,” said Michael Collins, TREB President.

TREB says that proposals to address money laundering in real estate and the increased use of federal real estate to boost housing supply are also positive moves.

The Canadian Real Estate Association said that it’s pleased with the Conservative proposals which include suggestions that it has been making to policymakers.

Mortgage Professionals Canada has also welcomed the latest announcement from the Conservatives which would reduce the mortgage stress test thresholds and bring back a 30-year amortization period.

“We are delighted to see our recommendations included in the Conservative Party of Canada platform,” said Paul Taylor, President and CEO of Mortgage Professionals Canada. “I am very encouraged to see the real concerns of our members, and the would-be homeowners they serve, have been addressed in such a positive manner. Accessible home ownership is an important issue for all Canadians. Thank you to Andrew Scheer and his team for having heard our concerns and responding so directly.”

The average Canadian household was worth less in 2018 than in the previous year.

The average net worth of $678,792 was down $7,594 (1.1%) in 2018 according to a study by Environics Analytics.

While real estate values gained $6,336 (1.6%) other factors erased this gain as equities contributed to a $10,045 (3.4%) drop in liquid asset values.

The impact was worsened as household debt continued its upward trajectory, adding $3,309 (2.3%) to the average debt burden; and interest rate increases slashed $576 of employer pension plan values.

“Despite being relatively prudent in terms of their debt acquisition and repayment in 2018, Canadian households felt the effects of a significant decline in equity market valuations over the fourth quarter of the year,” says Peter Miron, Environics Analytics’ Senior Vice President, Research and Development and the architect of WealthScapes. “On a more positive note, Canadians are actively taking steps to reign in their debts and build up their savings. In fact, four provinces saw the average debt per household decline in 2018.”

Apart from the investment losses, rising interest rates during 2018 have been another significant drag on household net worth. In response, Canadians have been trying to blunt the effect of rising rates by converting their variable-rate, non-mortgage debt into locked-in loans.

Real estate organizations from across Canada are urging federal election parties to cut barriers to homeownership.

Several bodies representing real estate agents have united in their message to politicians to reduce the challenges facing homebuyers including the mortgage stress test and zoning restrictions.

They are also keen for the next government to allow 30-year amortizations to help boost affordability and give more flexible options for homebuyers.

“We need concrete results in the Greater Toronto Area to address the lack of supply by reducing red tape for building, relaxing zoning to expand mid-density (e.g., townhomes) housing, facilitating more transit-oriented development, accelerating infrastructure improvements and lightening the taxation burden facing home buyers. The Ontario government and the City of Toronto are working on solutions to bring more supply on-line, but specific milestones should be set,” said John DiMichele, Chief Executive Officer of Toronto Real Estate Board.

Ashley Smith, president of Real Estate Board of Greater Vancouver added that, while the board believes in responsible lending and regulation, there’s a balance.

The stress test is causing more harm to hopeful home buyers than it needs to. It’s hurting affordability and stifling people’s ability to meet their housing needs,” he said.

No one-size solution
Matt Honsberger, President, Nova Scotia Association of Realtors said that one-size-fits-all policies do not work in the housing market and urged political parties to focus on the economic contribution that real estate makes.

And Julie Saucier, President and Chief Executive Officer of the Quebec Professional Association of Real Estate Brokers, highlighted the homeownership rate in Quebec, which at 61% lags the other provinces where rates are above 70%.

“We believe that there needs to be better support offered to buyers of residential properties, particularly first-time buyers,” she said. “We also support the implementation and maintenance of home renovation tax credit programs to encourage the purchase of properties requiring upgrades, a refund of transfer duties for first-time buyers, and the introduction of mortgage rules that are adapted to regional and provincial differences.”

Alan Tennant, Chief Executive Officer, Calgary Real Estate Board, added that leadership in government is needed to end ad-hoc policies and create a clear housing strategy.

Stolen equity
“To help Canadians, the real estate market must have liquidity, but the federal government’s anti-homeownership policies have made it difficult for millennials to purchase their first home, difficult for families to upsize or downsize as their needs change and difficult for seniors to exit the market,” commented Michael Brodrick, Chair, Realtors Association of Edmonton.

He added that the stress test was introduced nationally with no regard for regional differences and has cut the level at which buyers can enter the market.

“This has lowered prices and stolen equity from homeowners. Home equity is a substantial asset for many Canadians, and this equity will not be easily or quickly rebuilt,” he said.

The Liberals have promised to increase limits and make some other changes to the First-Time Home Buyer program, if they win the federal election.

The flagship program, introduced earlier this month, has been criticized for limits which exclude potential buyers of homes in the priciest markets such as Toronto and Vancouver.

But the party says that it would immediately expand the Incentive to provide more help to communities in the greater Toronto, Vancouver, and Victoria regions by allowing homes valued at up to $789K to qualify.

Reacting to the announcement, Toronto Real Estate Board issued a statement:

“Today’s First-Time Home Buyer program announcement responds to the fact that housing markets vary from region to region, something TREB has long pointed out. The higher limits now take into account higher priced properties in markets like Toronto and Vancouver,” it states.

TREB re-stated its belief that its recommended solutions, including revising the mortgage stress test and bringing back 30-year mortgage amortization, will be effective in addressing ownership housing affordability.

Foreign ownership

The Liberals have also pledged to introduce a consistent, nationwide speculation and vacancy tax for non-resident Canadians.

In response, TREB says:

“Further analysis is required to understand if today’s proposed speculation and vacancy tax announcement will help increase the supply of available housing over the long term, or aid with affordability. We’re also keen to hear from the other federal political parties regarding their platforms on measures to assist with home ownership affordability.”

A new report shows disparity in home price trajectories across Canada, including some large decreases.

The CENTURY 21 analysis of home prices reveals that some communities have seen some steep decreases in price per square foot in the past year, most notably in British Columbia.

BC’s decreases are led by some significant downturns in Vancouver, many suburbs in Metro Vancouver, and even some markets on Vancouver Island and the Okanagan seeing declines of 10-20% year-over-year in the first 6 months of 2019.

“What strikes me in this survey is how pricing trends varied so broadly across communities and types of property over the last year,” says Brian Rushton, Executive Vice-President of CENTURY 21 Canada. “It is not surprising to see Vancouver prices drop so much, but the drop is actually more significant in some Metro Vancouver suburbs like West Vancouver and secondary B.C. markets such as Vernon and Kelowna.”

It was the first time since the study began 3 years ago that the price of a single-family home on Vancouver’s West Side slipped below $1000 per square foot, at $990psf it represents a 13.74% year-over-year.

Montreal on the rise
There were more moderate declines in Alberta and the Prairies, while Montreal condos jumped 25% ($709psf), Toronto gained 10% ($994psf), and most Atlantic Canada markets posted modest increases. Detached houses in Montreal gained 11.77% to $674psf

“Prices in Montreal and Toronto continue to head up, to the point detached houses in Montreal cost more per square foot than houses in many Metro Vancouver suburbs, and twice as much per square foot as Calgary,” noted Rushton.

Downtown Vancouver condos remain the most expensive properties in the survey at $1,241 per square foot, despite an 8.4% decline from the same period last year.

Calgary prices fell 3.59% from $293 per square foot to $282. Regina prices for a detached house fell 2.88% to $246 per square foot. Winnipeg saw the sharpest decreases in the Prairie Provinces, with decreases of almost 14% to $243 per square foot.

“With so much variation in the market and prices adjusting very differently depending on neighbourhood and property type, now more than ever it is important to have good information when making real estate buying and selling decisions,” Rushton added. “The list of complex local factors we see reflected in this survey is a long one, ranging from new taxes on property speculation and foreign buyers in B.C. through to a changing economy impacting neighbouring Toronto suburbs very differently.”

Home sales in Metro Vancouver increased in double digits year-over-year in August.

Total sales of 2,231 reported by the Real Estate Board of Greater Vancouver was 12.7% below the July total but was 15.7% higher than in August 2018. Sales were 9.2% below the 10-year average for August.

“Home sales returned to more historically normal levels in July and August compared to what we saw in the first six months of the year,” said REBGV President Ashley Smith.

There was a drop in new MLS listings of 3.5% month-over-month and 18.8% year-over-year (3,747) taking the total inventory to 13,396, almost 6% lower than in July but up 13.3% from August 2018.

“With more demand from home buyers, the supply of homes listed for sale isn’t accumulating like earlier in the year. These changes are creating more balanced market conditions,” Smith said.

The sales-to-active-listings ratio was 16.7%.

The MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver in August was $993,300, down 8.3% year-over-year and down 0.2% from to July.

Stats by property type

Sales of detached homes in August 2019 reached 706, a 24.5% increase from the 567 detached sales recorded in August 2018. The benchmark price for detached homes is $1,406,700, a 9.8% decrease from August 2018 and a 0.7% decrease compared to July 2019.

Sales of apartment homes reached 1,116 in August 2019, an 8.9% increase compared to the 1,025 sales in August 2018. The benchmark price of an apartment property is $771,000, a 7.4% decrease from August 2018 and a 0.1% increase compared to July 2019.

Attached home sales in August 2019 totalled 409, a 21.4% increase compared to the 337 sales in August 2018. The benchmark price of an attached unit is $654,000, a 7.8% decrease from August 2018, a 0.2% increase compared to July 2019.

As Canadians enjoyed the Labour Day holiday, a new government scheme was officially launched that aims to help more people get on the housing ladder.

But the First-Time Home Buyer Incentive may not be the panacea for potential new entrants into Canada’s housing market that Justin Trudeau and his ministers hope.

Critics say that it will not make a widespread difference to the ability of first-time homebuyers to afford to follow their homeownership dreams.

With the program’s requirements for household earnings of a maximum $120,000 and a mortgage-to-income ratio capped at 4 times household income, the top-end of the homes that the scheme will help to buy is far short of the $826K average home price in Vancouver or $982K in Toronto.

“It’s a very narrowly-focused program,” Royal LePage President Phil Soper told Bloomberg. “It’s just not a big enough slot of the market to move it.”

100K borrowers or 5K?

CMHC, which is administering the program, estimates that it could help 100,000 first-time homebuyers but Mortgage Professionals Canada thinks the figure could be as low as 5,000 as potential buyers are dissuaded by giving up equity in their new home and mortgage insurance requirements.

“The government says it wants to make homeownership more affordable and accessible, but its actions say otherwise,” MPC chief economist Will Dunning told Bloomberg. “The proposals “to improve access are likely to have only small positive effects.”