Our team has been enjoying an early Spring Market with purchases and refinance activity spurred on by January’s record low rate specials. In the last two weeks there has been a 0.25% increase in bond yields. Many of January’s “Quick close” and “No Frill” specials were cancelled last week due to rising cost of funds. At this stage we have one lender who is still offering 2.99% 5 year, hi-ratio insured with a 60 day close for well qualified purchasers. We have been advised this special could be cancelled at anytime. Regarding mortgage rate trends, we like others, are following Europe and Greece very carefully. The successful management of the sovereign debt crisis in Europe has a direct bearing on our capital markets and cost of mortgage funds. So far, there has been positive progress and we have seen a small but steady increase in long term bond yields as cautious optimism continues.

As we enter the Spring Market, there is a tightneing bias in Canada’s mortgage market.

The Finance Minister and Department of Finance are wanting to cool our housing market and are wanting lenders to tighten mortgage rules and increase their capital reserves.

• To date, lenders have reacted to regulatory and government pressure by:

1. Amending or in some cases cancelling their Stated Income/Equity lending programs.
2. Amending or in some cases cancelling their rental programs.

This tightening bias will affect self-employed individuals, new immigrants, and real estate investors. Lenders who are still participating in Equity and Rental programs are bonusing their rates, and are doing more diligence on income and liquid assets. The added diligence is to ensure borrowers are stating reasonable income, and have some liquid reserves to make their mortgage payments.  This is the fourth round of tightening since 2008, and we expect the government will continue to watch the market. Minister Flaherty has advised mortgage lenders that he may make other changes if he doesn’t see our debt levels stabilize. Our team look forward to working with you and your clients to fine tune mortgage plans as guidelines and lending programs continue to evolve.

On Tuesday, I attended Helmut Pastrick’s 2012 BC Economic Forecast which can best be summed up as “a Goldilock’s year for Vancouver.”   Not too hot and not too cold.  Mr. Pastrick expects we will see marginal improvement in our economy, while the rest of the globe, especially Europe and US, continue to deal with more serious issues relating to sovereign debt, weak housing markets, and unemployment.   If you’d like a summary of Mr. Pastrick’s outlook, please let me know, I will relay a copy!

As we move into February, mortgage  rates remain flat.  Prime is unchanged at 3%  and our best 5 year rate is being offered by two outliers who matched BMO’s 5 year no frills special of 2.99% OAC.  BMO’s no frills special ended last Wednesday.  We are monitoring these providers to see if they will continue this incredible offer!

As we enter RRSP season, we wanted to point out how First Time Buyers can increase their down payment by up to 43%!  First Time Buyers can invest their savings in an RRSP by February 29^th, 2012 (max $25,000 per person).   By Investing into an RRSP they will earn a tax deduction, and a refund, thus adding to their down payment.  The amount of tax refund will depend on their marginal tax rate.  BC Marginal Tax rates range from 20.06% – 43.70% based on taxable income.  After 90 days your client’s can redeem their RRSP tax free under the RRSP Home Buyer’s Plan.   Example – A $10,000 RRSP will yield a $3,000 tax refund for someone with a 30% marginal tax rate.

Please note there are certain conditions:

1. You must be considered a First Time Buyer in the eyes of the Federal Government (have not owned a Principal Residence the last 5 years).
2. You must repay your RRSP withdrawal over a 15 year period at 1/15^th per year.  If you fail to reimburse your plan, you claim the 1/15^th portion due as income and pay income tax.
3. The RRSP funds should be set aside in a guaranteed investment vehicle, and we recommend professional advice!  It’s imperative that funds can be redeemed conveniently without penalty.
4. While the RRSP’s remain in the account for 90 days, we can concurrently hold an interest rate for 120 days ensuring mortgage financing works hand in hand with RRSP Home Buyer’s Plan.

Contact us for more details if you know any First Time Buyers interested in boosting their down payment for a planned purchase this year.

Canadian debt levels didn’t escape comment by the Bank of Canada. The Bank is becoming increasingly concerned with consumers taking on more debt due to rates being so low. We continue to hear rumblings from our lender partners that OSFI (Office of the Superintendent of Financial Institutions Canada), are continuing to review Mortgage underwriting standards and are recommending prudence in ensuring consumers do not burden themselves with high debt levels in our record low rate environment. We expect lending guidelines will remain conservative.

With last weeks European debt sale pushing sovereign debt interest rates to new highs in Europe, bond yields continue to hover at record lows. Investors fear the increased debt servicing costs of the bailout auction will hamper growth and keep Europe in recession longer than originally planned. The drop in bond yields has prompted several drops in interest rates this week. The Canadian yield curve is now flat! Prime remains at 3%, with some “no frill” mortgages now offered for as low as 2.99% for a 5 year term OAC. The drop in interest rates and flat yield curve are attracting a lot of consumer attention! We are receiving many requests to review cost/benefit of breaking existing terms and refinancing at new lows.  Rather than refinancing, certain clients may better benefit from a blend/extend option. The best plan of action to benefit from these rates will depend on the terms and penalties of each mortgage contract.

Our team remains keen to assist, and look forward to assisting anyone you know with their mortgage planning! Have a great week!

At a macro level, European issues are far from over and with the growing instability of oil prices due to Iran’s threats of blocking oil shipments through the Strait of Hormuz, we expect interest rates to remain at current lows as we move into 2012 (more info on Iran’s threats here http://nyti.ms/uQ4isM). High oil prices place a drag on the economy from  higher manufacturing costs and reduced consumer spending. I recall reading an article that mentioned every $10 per barrel increase in oil prices was an equivalent of a 0.25% increase in the Bank of Canada lending rate. With oil prices at $100 per barrel, it won’t take much of an increase for economic drag to occur. This will affect weaker economies of Europe and US much more than Canada.

Thought I would share an interesting article about credit cards from this week’s Globe and Mail. While lawmakers have tightened mortgage rules over debt concerns, there has been very little action taken to limit consumer credit such as credit cards and lines of credit. As noted in the article, credit card delinquencies are now at record highs with little pressure to change consumer credit rules http://bit.ly/tuUDqq. As Accredited Mortgage Professionals we review consumer debt and borrowing efficiency as part of our overall debt planning to ensure clients avoid the slippery slope of consumer credit.

Have a great New Year’s celebration with our best wishes for continued health and success in the year ahead! Chat soon!

In reviewing my recent summaries I’m struggling to find anything new & interesting to say about Europe. The recent EU Summit has left markets flat as credit rating agencies and investors seek more substance than an agreement to pursue stricter budget rules. Moody’s Credit Agency have commented that the summit communique offers “few new measures and does not change Moody’s view that risks to the cohesion of the Euro area continue to rise”. Moody’s goes on to state that “Unless credit market conditions stabilize in the near future, our ratings of all EU sovereigns will need to be revisited. The communique does not change that view, and we continue to expect to complete such a repositioning during the first quarter of 2012.”

The issues in Europe continue to drive up the short term cost of money as interbank rates rise.  Variable mortgage rates have climbed with our best available terms now between Prime minus 0.10% and Prime.  The 5 year fixed rates remain at record lows in the 3.24% – 3.49% range OAC depending on terms and length of rate hold required.

Meanwhile back at the ranch… our local Real Estate market remains healthy and in a balanced state. There is sufficient activity to keep prices firm and with Stats Can recently advising housing starts dropping by 3.6% in BC, we expect a balanced market to continue.  We continue to see value in the resale condo market given the rising cost of land and increased government and development costs for new construction. With single family homes out of reach for many, we are seeing more condo and town house activity.

As we enter the final weeks of the year, we are monitoring recent rumblings by the Bank of Canada, Minister Flaherty and Office of the Superintendent of Financial Institutions.  Messaging about consumer debt levels and a healthy banking system is the main focus of Minister Flaherty. Under a new Bill, Mr. Flaherty is requesting ultimate power in reviewing banking activity http://bit.ly/vJCSMx  We have been advised by some of our bank lenders that recent OSFI audits have been onerous, especially in areas of equity lending. We foresee more evidence of income and cash flow being required by institutions in the coming year. Asset based and stated income lending may become more difficult as government agencies look to limit debt levels in our record low interest rate environment.

Finance ministers from the 17 member European monetary union met in Brussels yesterday to figure out next steps in strengthening their bailout fund. On their agenda was how to increase the bailout fund to 1 trillion Euros, involving the IMF, European Central Bank, and insulating Spain and Italy from worsening the debt crisis. President Obama is quoted as saying “Solving the European crisis is of Huge Importance to the US.” On the heels of yesterday’s meeting  the European Central Bank, US Federal Reserve, Bank of Canada, Bank of Japan, and the Swiss National Bank announced their coordinated effort to provide liquidity support to global markets.  China also cut reserve requirements for its own banks. This is the first time since 2008 that China has made a move to support continued economic activity.

Prior to these Central Bank actions, we have been witnessing a flattening in our mortgage yield curve. Inter-bank lending rates have continued to rise on European debt woes, while long term bond yields drop keeping fixed rates at record lows. The best 5 year discounted rate of 3.14% remains available on a 45 day quick close OAC. The best 5 year variable rate remains at Prime minus .35% (2.65%) OAC, the Prime minus .35% is an outlier and we expect this offer will end soon. The majority of lenders offer Prime to Prime minus 0.20%. With less than 1/2% separation between variable and 5 year fixed, choosing the right mortgage term requires careful planning.

As we enter the holiday season, we suggest you consider a “Holiday Debt Check”. Many Canadians are carrying higher interest loans and credit card debts and can overspend this time of year. The resulting plastic shock in January can leave one feeling frustrated.  Do a quick assessment; Are you carrying too much credit card or other high interest debt right now? Do you have a fund set aside for holiday shopping? Are you struggling to keep up with your monthly obligations? If you answered “yes” to any of the above, it’s worth having a conversation about streamlining your finances before the holidays.  On a recent file for a self employed individual, we saved them $1,200/month in interest by paying out credit cards and the unsecured credit lines they were using to cash flow their business. Secured mortgage lending remains the lowest long term cost of financing. Before going crazy over the holidays, take a moment to contemplate your own financial comfort & joy!

The Provincial Outlook:

BC & Alberta’s economies are expected to continue leading the country

Population and global demand for western resources will keep the West growing

BC real estate prices are expected to dip 1% mainly due to easing of values on Vancouver Island and the Interior

Vancouver and Fraser Valley continue to be main economic engine for the province

Overall Sales activity is expected to increase slightly in 2012  to 81,900 sales from 77,200 forecast for 2011.

Interest Rates are expected to remain near record lows as economic volatility continues in Eurozone and US

Migration still an important driver to BC’s economy with 20,000 new households expected

Majority of migrants settle in GVRD

Housing starts are expected to maintain a balanced market with 28,500 new starts forecast in 2012.

Vancouver Outlook:

Land Constraint and demand from migration to area (abroad and interprovincially) will keep prices firm in Vancouver

2012 MLS price is expected to increase 2% in Vancouver to average price of $805,000.

Single Family Home prices are expected to level off. The 26% average appreciation in SFD homes isn’t sustainable.

Supply & demand are considered balanced. Condo supply has decreased from 2600 units to 1300 units – now a 6 month supply

Multi-Family starts and completions should keep market balanced

Investor purchases and secondary suites continue to supply the majority of rental units with vacancy rates considered low

Breakdown of buyers according to a recent Landcor survey are as follows:

-          9% of overall sales in GVRD are tracked to immigrant purchasers

-          74% of high end luxury purchases are tracked to Asian Buyers

-          3% of purchases are tracked to Investment purchasers.

Renovation spending is expected to remain healthy with 3.7 Billion forecast for 2012

Speculative activity remains low with only 4% of sales turning over within 12 months

Properties located near transit, less than 5 years old, allow pets, or rentals, and have an extra bathroom obtain highest sale prices.

Risks & Opportunities

With affordability stretched in single family markets, high land and development costs, we see strata properties as an opportunity for First Time Buyers and Investors.  This being said, there are risks to CMHC’s forecast such as Global Financial issues in Europe and US, Government changes relating to taxes and borrowing, along with Migration trends. We’d be happy to review the pros/cons of homeownership and answer any questions you may have about this bulletin.

The last few months have seen global economic prospects worsen over concerns of slowing growth in China and continued debt woes in Europe and the US.  This is in sharp contrast to Canada & especially Vancouver. Like a cat with nine lives, our market continues to be buffered from global headwinds.  Why is Canada doing so well?  Let’s start with debt; prudent financial policies allowed Canada to avoid a US style housing meltdown. 25% of mortgages in the US are still more than 30 days in arrears.  This is in sharp contrast to Canada’s 0.46%.  With a healthy housing market, a stable banking system, resource wealth, and low unemployment, Canada has done very well in comparison to other developed nations.  Combine these positive factors with Vancouver’s burgeoning trade along the Pacific Rim, increased corporate competitiveness, and low interest rates; our economy is maintaining a steady pace despite turbulence abroad.  The recent multi-billion dollar shipbuilding contract awarded to Seaspan is a demonstration of BC’s competitiveness and our positive “micro-economic” climate.

So what is happening in Vancouver Real Estate? In the past 12 months we have seen the price of the average Vancouver house price increase by 23%.  This figure is misleading as the average is skewed by the high number of multi-million dollar home sales on the West Side.  A more realistic statistic is the Median price of housing which is up 17.5% on the West Side and 15% on the East Side. Condos and Townhomes are up 3% and 11% respectively.  Despite gloom & doom headlines Vancouver is continuing to grow for the following reasons:

• Population based demand.  20,000 new households will be formed in the GVRD this year.
• Strong Migration is expected to continue with 17% of new arrivals buying a home in the 1^st year and 50% becoming homeowners 4 within years of arrival.
• Quality Employment. The Lower Main- land has lower unemployment than the rest of BC and offers better quality “Full Time” jobs.
• Low interest rates are expected to continue.  These support economic growth and our housing market.

Reaction in Canada has been swift with 5 year bond yields dropping from 1.64% to 1.40%.  Recent upward pressure on fixed interest rates has reversed on renewed European uncertainty, and we expect short term interbank rates to climb so variable rates will continue to have a significant risk premium applied as the threat of Greek default persists in Europe.   Variable rates with discounts below Prime continue to erode with widely available rates now between Prime and Prime -0.30.

Bubble Trouble?  Having recently attended a Vancouver Board of Trade and CMHC event concerning the health of Vancouver’s market, I’m pleased to report Vancouver Real Estate continues to perform well despite global headlines.  September’s Median Prices show a year over year increase of 17.5% on Westside Single Family Homes, and 15% on the East Side.  Condo and Townhomes are up 3% and 11% respectively.  When asked why our region is doing so well in light of global issues, analysts responded with the following:

• Population based demand continues to grow in Greater Vancouver with 20,000 new households created this year.
• Strong Migration.  17% of migrants buy a home in their first 12 months, 50% buy within 4 years of arrival.  52,000 people are arriving in BC this year, with 60,000 forecast for next year.  There are 300,000 immigration applications in the pipeline.
• Quality of Employment. The Lower Mainland’s unemployment rate is lower than the rest of the Province and offers better quality full time jobs.
• Low interest rates continue to stimulate First Time, Move Up, and Investment purchases.

Did you know that under the “Welcome to Canada Programs” income qualified purchasers with 3 months of verified income in Canada can buy with as little as 5% down OAC?  Clients who are not landed and have a work permit are also eligible and require 10% down OAC.   For additional information on this or any other program, please call us and we’d be happy to review specific circumstances and requirements!

Of primary concern to the global economy is Europe’s establishment of a debt plan.  Canadian Finance Minister Flaherty has been openly critical of the lack of action taken by European leaders.  Ironically, the Greek philosopher Aesop is quoted as saying “After all is said & done, there is more said than done” which captures the current climate in Europe.  While investors seek certainty, European sovereign and political self-interest continue to cause delays in establishing a workable plan.  With continued financial risk in Europe, Variable Rate mortgages are increasing as lenders price in default risk.  Most lenders now offer Prime to Prime minus .25% with some outliers still at Prime minus .40% to .50%.

Circling back to Vancouver, our team continues to see a healthy level of activity.  Listing inventory has increased with prices leveling in most areas.  With borrowing rates near record lows, we are seeing a new wave of investors, move-up, and first time buyers.  Included in this activity are parents purchasing with their children as an alternative to renting.  With flexible co-signing policies, and high-ratio insurers offering “family plans” we are seeing a new generation of buyer’s develop credit worthiness and home ownership with assistance of their parents.