New Mortgage Rules to do “More Harm Than Good”
Tougher borrowing rules that will require home buyers paying larger down payments to pass a stress test before qualifying for a mortgage aren’t necessary, and could even be harmful, argues a report from the Fraser Institute.
The B-20 mortgage regulations, the extent of which will be unveiled by the Office of the Superintendent of Financial Institutions (OSFI) by the end of October, will mean low ratio borrowers must prove they can carry a mortgage that’s 2 per cent higher than their actual rate to get home financing. Currently, only high-ratio borrowers (those paying less than 20 per cent down) are stress tested.
The regulations introduce widespread changes for all borrowers and lenders in Canada, and have been forecasted to chop up to 21 per cent of home buyers’ purchasing power. The report, titled “Uninsured Mortgage Regulation: From Corporate Governance to Prescription”, states that OSFI already has the tools it needs to reduce mortgage risk in Canada without going after borrowers. Limiting mortgage options could effectively push more vulnerable borrowers from A-lenders to riskier options such as private financing, which come with much higher interest rates, it warns.
“The proposed stress test risks negative impacts on the Canadian residential mortgage market including higher loan pricing and reduced loan access for some consumers. It could also lead to less competition and create an incentive for riskier behaviour in some circumstances,” it reads.
“OSFI already has the regulatory tools to address any concerns it may have including the power to direct financial institutions to correct any deficiencies in underwriting practices.”
The OSFI measures have come under fire from various corners of the housing industry, which say that, combined with softening market conditions and rising interest rates, it could prove too much for home buyer affordability. A recent Scotiabank report found it will soon be 8 per cent more expensive to carry a mortgage, though existing mortgage holders in five-year terms will only be “gradually impacted” by rising rates and will only be stress tested if changing their mortgage lender.
No Relief in Sight for Competitive Toronto Rental Market
New reports out this week shed more light on the extent of Toronto’s rental woes – and that current measures to help are falling short.
Research from the Ryerson City Building Institute and Evergreen finds 8,000 new units need to be created each year in order to establish and maintain a sustainable vacancy rate of 3 per cent in the city. At that rate, it would take five to 10 years to improve supply, the report states, with the current vacancy rate at a historical low of 1.4 per cent.
The cost of an average one-bedroom rental rose 6.3 per cent from 2015 – 2016, and an additional 8.8 per cent in 2017, Ryerson says.
The report also addresses Toronto’s dependence on privately-owned condo units that are rented out, saying greater focus needs to be placed on creating rental purpose projects. Currently, there are 76,000 new condo units created each year, compared to just 24,000 rental purpose-built. It calls for new policy to increase rental availability, such as more incentives for developers at the city level, extending the development charge rebate introduced in the province’s Fair Housing Plan, and improving HST credits for rental builders.
However, it doesn’t appear the market is on track to accomplish these recommendations; the latest numbers from think tank Urbation reveal rental condo rates rose $232 over the past year to an average of $2,219, competition is at an all-time high, and adequate new supply isn’t likely.
Stated Shaun Hildebrand, Urbanation’s senior vice president, “The intense competition between renters in Toronto shows no signs of letting up in the near future. While it’s encouraging to see that rental proposals are still coming in, the level of new development needs to ramp up significantly in order to meet demand.”
Condos put up for lease were also snapped up at a record pace staying on the market for an average of 10 days in the third quarter, with less than two weeks of supply available.
“All indicators point towards a decline in vacancy rates in Toronto over the past year,” Hildebrand says.
BC Finance Minister Pledges Action on Vancouver Prices
British Columbia’s Minister of Finance Carole James alluded to further provincial measures to cool the Vancouver housing market in an interview this week, saying the current state of the market is proving detrimental to business investment and talent retention – not to mention priced out residential buyers.
“It’s become a bigger issue. It’s become an economic issue for companies that can’t find opportunities to retain and attract employees,” she said to Bloomberg. “That’s critical for companies looking to invest,” adding the foreign buyer tax implemented in Metro Vancouver last August isn’t enough to address the issue on its own.
The BC provincial government is to introduce new measures to calm Vancouver real estate in their next budget, to be unveiled in April. Policy changes could include a crackdown on short term rental providers such as Airbnb, as well as tax changes to dissuade speculative buying and investing.
James’ comments are in response to a report from Swiss bank UBS, which found, out of a top 20 cities with real estate bubble risks, Vancouver ranked fourth and Toronto first.
Better Protection for New Build Buyers
In March, Tarion – the longstanding regulator and warranty provider for newly constructed homes – had its status stripped by the Ontario government, in lieu of a standalone regulator. Now, the province is overhauling the claims process new home purchasers follow to receive compensation for defective construction – an undertaking that has been criticized as convoluted and unfairly stacked against the consumer.
Stated Minister of Government and Consumer Services Tracy MacCharles, “This has been a persistent issue that consumers, stakeholders and the media have been vocal about. If passed, the proposed legislation would clarify the dispute resolution process to make it easier and fairer for new homeowners.”
While it’s not yet confirmed when the legislation, which is part of the Strengthening Protection for Ontario Consumers Act, will go into effect, MacCharles is optimistic that the new home warranty and claims process will be in place by 2020.
Construction Slowdown Ends 8-Month Streak
The pace of new construction in Canada slowed in September for the first time since February, reveals the latest numbers from the Canada Mortgage and Housing Corporation. Just 214,821 new home builds were started last month compared to 220,573 in August – but, “nevertheless, new home construction remains very strong as the seasonally adjusted number of starts was above 200,000 for four straight months,” says CMHC Chief Economist Bob Dugan.
Toronto saw a more pronounced 7-per-cent slowdown, which CMHC attributes to development delays rather than slower sales or demand. Multi-family housing, such as condos, saw the greatest decline, which isn’t surprising as it’s by far the most common type of new construction in the city.
“Monthly variations in high-rise starts are typical given delays in getting large scale projects off the ground,” reads the report. “Low-rise starts remained strong. The overall pace of new home construction remains stable as strong demand for new homes in the Toronto CMA continues to persist.”
Toronto Market Correction to be Shorter Than Vancouver’s
Sales and prices may have taken a tumble following the implementation of the Ontario Fair Housing Plan, but the slowdown will be short lived, according to the latest report from Royal LePage.
The brokerage’s quarterly House Price Survey finds the Greater Toronto Area saw the greatest price appreciation of all Canadian markets between July and September, rising 21.7 per cent from last year.
“Following a very similar trend to the Vancouver housing correction of 2016, the Greater Toronto Area market experienced a sharp drop in sales volumes beginning in April 2017, which continued through much of the third quarter,” reads the report. “Potential buyers who were previously on the sidelines taking a wait-and-see approach have now jumped back into the market after realizing prices did not drop as certain market watchers had anticipated.
“On the supply side, some sellers who had attempted to capitalize on an uncharacteristically strong spring have taken their homes off the market. Together, these trends have caused the region to revert to a more balanced market where supply and demand have stabilized in the majority of areas.”
The report adds that as Toronto’s market is larger and has much lower prices than Vancouver’s, the diminished presence of foreign buyers as a result of a non-resident speculation tax will have less of an impact than it did on the west coast.
Royal LePage also points out that, as a result of slower sales in the GTA and Vancouver, all five of Canada’s largest housing markets experienced a similar pace of price appreciation, for the first time in six years.
“Uneven regional economic growth has plagued Canada for much of the past decade, a challenge most evident in the nation’s housing markets,” says Phil Soper, president and CEO at Royal LePage. “For now, the Toronto and Vancouver markets have returned to earth. After a period of unsustainable price inflation and sharp market corrections, we are seeing low single digit appreciation in each.”
Jennifer Lopez Lists Manhattan Condo for $27 Million
JLo’s love may not cost a thing, but her NYC condo will set you back an impressive US$27 million. The iconic songstress and former American Idol judge has recently listed her four-bed, six-full and two-half-bath duplex, located in the hyper-exclusive Whitman Building in Manhattan’s flatiron district. We imagine it would take an army of Manhattan maids to keep all 6,250 square feet of living space clean, but the massive double-decker outdoor terrace and Madison Square Park views are worth it! Guess Jenny’s moving on to bigger and better blocks – if she gets asking, she’ll make a cool US$5 million, having bought the penthouse for $22 million in 2014.