Analyzing years of mortgage rule impact

The most recent mortgage rule changes have had a much smaller impact on the market than previous policy changes and there’s a simple explanation for that, according to a new report.

The most recent mortgage rule changes have had a much smaller impact on the market than previous policy changes and there’s a simple explanation for that, according to a new report.

There has been an unprecedented number of housing policy changes over the past year-and-a-half, according to TD Bank, and each has been aimed at tempering housing demand.

And while the industry viewed the last round of changes as particularly invasive, they have proven less impactful than previous iterations.

“Each successive regulation change at the federal level has left a smaller mark on home buying activity. Our estimates suggest that the most recent federal rule changes may have only shaved 2% off demand nationwide,” TD Economists Beata Caranci and Diana Petramala, wrote in their latest report, Canadian Regional Housing Outlook Navigating a Soft Landing. “In contrast, the first regulatory changes implemented in 2008 dampened home sales by roughly 10%. That policy increased the required down payment from 0% to 5% for insured borrowers and lowered the allowable amortization period from 40 years to 35 years.”

The reason for dwindling influence, according to the economists, is that each round of mortgage rule changes has specifically targeted borrowers who require mortgage insurance.

“This incented a shift away from high loan-to-value mortgages into conventional mortgages,” the economists wrote. “New loans that require homebuyer’s insurance now account for less than 20% of all new chartered bank mortgage originations, compared to 40% prior to 2008. So, each round of policy changes has targeted a shrinking share of the overall market.”

The Bank of Canada claims insured mortgage originations fell 43% in 2016 and early 2017 from the peak in late 2015.

However, that shrinking share was up by a growing number of Canadians relying on conventional mortgages.

Looking forward, it seems federal policymakers aren’t quite finished with their market tinkering.

The Office of the Superintendent of Financial Services (OSFI) has proposed additional rules in the form of income tests for all borrowers at a rate of 2% higher than the contracted rate.

And that policy is expected to temper housing demand even further.

“ … if the new measures are put into place, which will cause buyers in the former group to adjust their behaviour by coming up with a bigger down payment, opting for a lower priced purchase, scaling back other debt, or delaying a home purchase altogether,” the economists wrote. “In the year of implementation, we estimate that this new rule could depress demand by 5% to 10%, and shave 2% to 4% off of our current forecast for the average price level in 2018. This will be yet another force limiting price growth in the future.”

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Retiring early with real estate

Let your portfolio work for you: One investor gives his tips to become completely financially independent at any age.

By Sve Pavic, fulltime investor

Millennials have it tough financially- we’ve been told if we go to a respected University, study hard and get good grades we will land a great paying job. The reality? You graduate with loads of debt with no assistance or prospects of getting a great job and you return for more schooling thinking it will solve the problem. To add salt to the wound, house prices and rent keep increasing beyond reasonable affordability. As a millennial, I’m here to tell you that you can create your own financial freedom and you don’t need to settle and live in your parent’s basement into your 30s. In fact, I’m here to show you how we purchased our first house at 24, live for free by “house-hacking” and create passive cash flow for life.

What is house-hacking? The concept is simple yet powerful: purchase a house, create an income suite (e.g. basement apartment) and rent it out for passive income. The rental income from the apartment can either pay for the majority of your mortgage and living expenses, or you could even get paid to live for free. If you live in the main/ upstairs unit and rent out the basement, you can have the majority of your mortgage covered. If you go one step further and live in the basement/lower unit, you could not only live mortgage free but you could also have profit leftover in your pocket.

The first hurdle millennials and most people have to overcome is coming up with the downpayment. In our case, we lived below our means in order to save for a 5% downpayment. Another strategy is to borrow money from family, friends or private lenders. If required for financing, you could also ask them to act as a guarantor / co-signer.

Once we had the downpayment and financing confirmed, we purchased a detached fixer upper bungalow in the GTA which met all of the requirements for a potential basement apartment (e.g. ceiling height, separate entrance, zoning, parking, etc.). The house walkouts to a large backyard and backs on to ravine which is a major selling point for tenants. We built an open-concept legal 2 bedroom basement apartment with high-end looking finishes. We ensured we made the space look modern, bright and open so that it didn’t feel like a typical, dungy basement apartment. We started off by charging $1,250/mo (non-inclusive) with many applicants. Now we rent the unit for $1,450/mo (non-inclusive) and live mortgage-free.

Since then, we have refinanced the house based on the built-in equity and purchased another property which will be converted into a duplex. We are using this same strategy, except creating a 3-bedroom basement apartment and renting both units individually by room. The property is expected to cash flow more than $1,000/mo after all expenses. Once this duplex is complete, we will be refinancing and finding another property to expand our portfolio.

Rinse and Repeat until you reach your goals of financial freedom.

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Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

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Veteran estimates foreign investment as much as 70%, argues for regulation

One Toronto brokerage owner is calling for foreign buyer regulation, despite some blowback from his own brokers.

Carl Langschmidt, president of Condos.ca, recently penned a blog entitled Foreign Investor Tax and Regulation Please! – a polite, yet assertive call to action.

In the piece, Langschmidt argues foreign ownership stats are much higher than the CMHC’s estimate of 2.3% of sales in Toronto. He went so far as to call that figure “laughable.”

“Our talks with sales reps in the trenches indicate it is much higher; some reported as high as 70% foreign ownership at developments like CityPlace,” Langschmidt wrote.

Anecdotal evidence, to be sure. But how about this other piece of sobering hearsay?

“Personally, this week alone, one of the agents in my brokerage who was meant to be listing a 50 unit condo building was just informed today the developer sold the entire building to a Chinese consortium and that we’re not getting any of the listings,” Langschmidt told Canadian Real Estate Wealth. “That’s how hot the market is.”

Vancouver had success with its own foreign real estate regulation when it implemented a 15% sales tax. That helped contribute to double-digit cooling in what was once Canada’s hottest market.

And Toronto may soon have its own measures introduced, with Ontario’s budget expected in the coming weeks. Ontario Finance Minister Charles Sousa said the budget will contain policy aimed at addressing housing affordability.

“Demand is high for a number of factors,” he said, per the Canadian Press. “Could be speculators, could be people from outside the country, it could very well be the many who are now moving into Ontario creating that demand.”

While many have argued in favour of a similar approach in Toronto, Langschmidt suggests a multipronged strategy that could also include special regulations for prebuild home sales.

“Preconstruction sales has morphed into a totally separate specialization in real estate; it’s almost as if agents who specialize in that are so different from traditional real estate where you’re showing properties,” he said. “Preconstruction sales is all about pitching investors and often agents and groups go overseas to pitch. I’ve seen their presentations. I cringe at their presentations. It induces the speculation; half of them use numbers are (off). A lot of them don’t calculate ROIs correctly. This is where I think some regulation is required.

“Anyone selling a stock or investment vehicle, there’s regulations in the securities business about what you can say. Whereas with (real estate sales) it’s the wild west.”

Many believe foreign ownership is having a major impact on Toronto home prices and will likely applaud Langschmidt’s comments. However, that may not include a portion of real estate agents, his own included.

“The reason why I’m saying it is I don’t mind saying what I think is true,” Langschmidt said. “It will upset people who deal with foreign investors; even in my own brokerage I had someone call me up and say ‘we have a lot of foreign investors and they’re not going to be happy with our opinion on us.’”

Related stories:
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Don’t tax foreign buyers says real estate board

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

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Have your say: Do you use property managers?

After one horrific account by a CREW reader, we want to know two things: Do you use a property manager and do you have any tenant nightmare stories?

A recent CREW story featured an investor who now swears by using property managers to take care of his properties after it was discovered a number of, shall we say, nefarious characters took up home in one of his rentals.

That got us thinking: How common is the use of property managers? Take our poll and let us know.
We also want to know if you have any tenant horror stories that have caused a major headache. Let us know in the comments below.

Of course, hiring a property manager doesn’t safeguard you from all potential issues. Property managers themselves can be a hindrance. As one CREW reader tells it:

“I wish to make it abundantly clear to all of our colleague landlords that there are some truly disastrous, bordering on criminally so, ‘professional property mangers’ in Vancouver, and some of them present themselves very deceptively, as the embodiment of ethical and competent managers,” the reader wrote in the comments section of CREW. “Be afraid. Do your diligence. Don’t sign anything that locks you in.”

So that begs another question: Have you had issues with property managers in the past? Let us know below.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Investment Hot Spots:
Mazenod, Mayflower, Barrow Bay, Milford Bay, Saint-Évariste-de-Forsyth

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The next market set for major growth

Home owners in this one market have already enjoyed impressive price gains but, with it poised for even more growth, the best times may still be ahead for investors – both current and future.

Brampton, Ontario, is currently poised for some major infrastructure growth in the health services sector, with several major world class hospitals in the works. The investment is one that will spike job growth and, as a result, investment and home price growth.

“What we’re trying to do as a city is try to think … about where the puck is going to be. Where it has been in the city is certainly in the automotive sector. That’s how people outside the city thought of us,” Brampton Mayor Linda Jeffrey told Canadian Real Estate Wealth. “As I became mayor, I talked about this during the election, but we are the beneficiary of three rather large health care investments by the province of Ontario. Seven years ago we got funding for Brampton Civic, which is one of the biggest, most active hospitals in Canada.”

Around the same time, the city also received approval to rebuild Peel Memorial Hospital. Brampton has also received funding for a world class children’s hospital.

“The other facility we got funding for was ErinoakKids, which is one of the largest children treatment centres,” Jeffrey said. “They do rehab and support services. So those three investments really position us to find ways to attract the businesses that support the allied services that support those facilities. At the same time, we’re trying to attract a university.”

Brampton’s housing market is already performing well, and with the planned projects – which will provide numerous jobs and entice many buyers – that trend will likely continue. Not to mention the close proximity to Toronto and growing transit system.

According to Jeffrey, the area has already been the target of investors.

“I think it already has and certainly we’ve had a lot of interest,” she said.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Investment Hot Spots:
Drummondville, Four Falls, Mount Denson, Fielding, Pitt Meadows

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Agent questions impact of foreign mortgages on Canadian debt levels

Worries around national average debt numbers are overblown, according to one real estate veteran who argues the stats could be inflated by mortgages held by foreigners.

“The national debt carried by Canadian consumers and the fact that Canada allows foreigners to borrow money for homes and that’s put into our debt [could have a major impact on debt levels],” Derek Austin, an agent with Century 21, told Canadian Real Estate Wealth. “Even 10 foreign borrowers taking out $10 million in mortgages each would throw the numbers out of whack.”

It’s an interesting take on the foreign investment trend and increased debt levels, which have both increasingly made headlines over the past year.

The average national household debt increased 5.1% in April, according to Statistics Canada. Mortgage debt showed the largest growth — up 6.2%.

And that trend is expected to continue, according to Doug Porter, chief economist for BMO Capital Markets.

“It’s tough to see anything turning this canoe around, as home prices continue to soar in Toronto and Vancouver, while there’s little prospect of a big bounce in personal incomes,” he told the Financial Post.

The impact foreign-owned mortgages have on national debt stats is unknown. Many may argue it has little effect, noting that many foreign buyers pay cash.

However, Austin isn’t so sure.

“The Royal Bank of Canada took away its limits on foreign mortgages,” he said. “Why would they do that if foreigners weren’t taking out mortgages?”

RBC announced in late 2015 that it will no longer limit mortgage size for immigrant buyers in Vancouver.

“We’re seeing a lot of affluent newcomers looking to buy high-purchase price homes,” Christine Shisler, RBC’s director of multicultural markets, told Reuters at the time. “Now we can actually service any mortgage amount.”

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Investment Hot Spots:
Port Saxon, Murray Corner, Suffolk, Upper Vaughan, Chartierville

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Investors flocking to this property class

Looking to make major capital gains? You may want to invest in this one property type.

Investors are being drawn to the commercial condo market, according to one industry veteran, because of the strong returns and red-hot markets.

“Office condos are attractive to investors for a couple reasons; the commercial market offers strong returns and you benefit from a strong economy and rising rents,” Scott Chandler, senior vice president, advisory and investment services at Colliers International, told Canadian Real Estate Wealth.

And investors seem to agree.

According to a Colliers research report, released Wednesday, investors now own 83% of office condos in Vancouver – up from 31% in 2010.

“Owning office space offers the advantages of having a fixed and clear cost in the wake of major increases in leasing rates, full control over the design taste and feel of your environment, the prospects of capital gain, and no longer having to worry about the lack of flexibility that is usually coupled with a leasing contract,” Chandler said in the research release. “As lease rates continue to increase and Canadian lending rates remain low, business owners are discovering the advantages and opportunities to own their own office space rather than lease and the market has responded.

Chandler says both Vancouver and Toronto’s office condo segments are attractive for investors.

“In Toronto and Vancouver, core locations – especially close to transit – [are attractive investments],” he said.

And many investors who have trouble raising their own capital are partnering with others to purchase these units, according to Chandler.

However, they aren’t the sort of investment that interest landlords looking to make a quick buck.

“Office yields are pretty low, in the mid-single digits; what’s driving interest is future capital gains,” Chandler said. “It’s medium to long-term investors; not flippers.”

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Investment Hot Spots:
Saint-Thomas-de-Kent, Schreiber, Saint-Agapit, New Waterford, Pierson

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Sounding the alarm for certain landlords

Last year was a tough one for the real estate market in Alberta, and uncertain will prevail – at least for the time being – meaning investors may want to hold off on making any major purchases.

“We really are just starting to see the effects and have no idea how long this is going to last,” Duane Ritter, an agent with RE/MAX, told CREW. “We are just starting to see the ramifications of the oil change and layoffs, I believe in next couple months will be a better indicator of where we are and how long we (will be in this situation).”

Alberta home sales fell 21.3% year-over-year, according to CREA’s most recently released statistics. Of the 10 major markets tracked by the association, nine posted sales declines; all except Lethbridge, which posted a 4.5% increase.

And while price declines weren’t as drastic, many are already forecasting further drops in 2016.

Overall, average home prices fell 1.9% year-to-date in December; those declines were led by Fort McMurray, which posted a 6.2% average price decline.

Dollar volume was also down.

Overall, volume was down 22.8%. Again, that drop was led by Fort Mac, which posted a 47% volume decrease.

As for how 2016 will fare, it’s anybody’s guess at this point.

According to CREB, Alberta’s economy will remain weak in 2016 with oil prices expected to remain below $45 U.S. per barrel.

It also forecasts housing demand will be weak; sales activity is expected to fall by 2.2% below 2015 levels to 18,416 units.

The average price is expected to decline by 3.44% to $438,652.

“It’s going to be interesting and not pretty,” Ritter said.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Investment Hot Spots:
Victoria Harbour, La Malbaie, Girardville, Port Severn, Dundas

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Moguls: Toronto condo market to remain vibrant in 2016

2015 has proven to be a landmark year for the condo market in Toronto, with sales volume reaching record heights and property prices increasing by an average of 4.9 per cent. 2016 is shaping up to be no different, according to three industry leaders.

In a roundtable interview with Greg Bonnell of BNN, the condo executives agreed that these growth indicators have no signs of stopping any time soon, and that internal threats to market stability are minimal.

“If supply remains tight and demand remains the same, we’ll see the numbers [remain] fairly consistent with 2015 in terms of both sales as well as prices maintaining their numbers, if not going up,” said Paul Golini of Empire Communities.

Factors such as low vacancy rates and an extremely dynamic market shield the Greater Toronto Area (GTA) from the shockwaves of the global oil crashes that have severely affected the Canadian dollar petro-currency, even as reduced purchasing power is pushing buyers towards more reasonably priced options.

“The vast majority of what we sell in this marketplace is between $300,000 and $500,000. It’s all predicated on affordability,” said Tridel’s Jim Ritchie.

Barry Fenton of Lanterra Developments concurred with the observation, adding that executives don’t see it as a concern that buyers are going for condos based on low interest rates – that is, they don’t consider the current robustness of the market as artificial.

“I think it actually helps the high-rise condo business, especially since buying a condo in downtown Toronto is roughly $500,000 versus a low-rise house with is worth around a million bucks,” said Fenton.

Golini remarked that among the aspects they are looking at closely this year are interest rates as they affect affordability – and affordability remains the crucial factor that determines sales volume. He added that a major meltdown in the global financial market poses the biggest existential risk to the market, despite the GTA’s currently exceptional economic performance.

Another risk they are watching for is the increased difficulty in finding new land for construction, which can lead to supply and demand issues down the line. Projections state that the next two or three years might see a significant reduction in inventory as condos are expected to remain hot commodities.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Investment Hot Spots:
Hopetown, Bolton-Est, East Green Harbour, Springfield, Saint-Louis

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Millennials a force to be reckoned with in real estate market

With millennials comprising about 25 per cent of Canada’s population, this segment is poised to outstrip their baby boomer parents in the real estate market as they start moving into their family-rearing years and purchase homes.

A large part of this population lives in major job growth hubs like Toronto and Vancouver, driving sales of single-family homes and starter condos in these areas. Experts said that affordability plays a central role in millennials’ purchasing decisions, even as the sector is willing to pay an average of $1,800 per month to rent condos close to their workplaces. This is because the average resale price of a Toronto condo is now approaching half a million dollars.

The demographic shift has forced developers to focus on the development of rental structures, with the expectation that a significant proportion of millennials would prefer to rent for life.

These projections line up with expert observations that millennials are more attracted to a job and a lifestyle, as opposed to owning cars or homes.

“Many of them, especially in the United States, have become skeptical of this notion of a house as an investment,” York University director of real estate and infrastructure program James McKellar told the Toronto Star.

“Millennials and the subset before them, the late 30-somethings, are probably the first generation of people who are living their early adult life in urban centres. For them, home has more to do with being part of a complete community than it did in their parents’ generation, when it was about having a backyard, a picket fence and a two-car garage,” Tas DesignBuild president and CEO Mazyar Mortazavi agreed.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Investment Hot Spots:
Ailsa Craig, Sea View, Sainte-Anne-des-Monts, Saint-Henri, Steam Mill

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