Canadian Mortgage News & Canada's Mortgage Trends

Mortgage Options for New Canadians

1.1 million people have immigrated to Canada in the past 5 years.  That's helped Canada's immigrant population grow at 4 times the rate of the overall country.

Not surprisingly, these new Canadians are becoming an important source of business for mortgage professionals.

To serve them well, however, one must understand their unique needs. Here are a few related facts of note:

• 91% of new immigrants feel that purchasing a new home is important to them, according to a recent Genworth survey.
• 72% of immigrants surveyed think their lack of credit history is a barrier to buying a new home.
• 45% say that understanding English-language mortgage information is difficult.
• 83% are concerned about their ability to save for a downpayment.
• The most popular reason immigrants give for buying a home is: "It is a good investment."

New Canadians clearly want to own homes, and educated mortgage professionals are their best shot at achieving this goal.  Mortgage planners now have access to a variety of mortgage programs for new Canadians, including:

• CMHC's Newcomers to Canada (100% financing)
• AIG's Maple Leaf Advantage (97% financing)
• Genworth's New to Canada (97% financing)

If you're a broker in a major population centre, know these programs well.

If you're new to Canada, contact us or any good mortgage planner to see if one of these mortgage options might work for you. 

We'll do another article in coming weeks on the key differences between these programs...

Fixed vs. Variable Rates...on a Chart

People often ask how variable mortgage rates compare to fixed rates over time.  Here's a chart that illustrates their relationship over the last 10 years.  (click to enlarge)

This graph shows the spread between fixed and variable rates since 1997 (the "spread" = the average fixed rate - the average variable rate).

The higher the spread, the more expensive a fixed-rate mortgage was compared to a variable at that time.

Despite a limited sample size, the chart is consistent with the common belief (and research) that variable rates are the better bet long-term.  In fact, since 1997 variable rates have been almost 1/2% cheaper than fixed rates on average. 

(The average fixed rate since 1997 has been 5.47%.  The average variable rate has been 4.99%.)

While the future may deviate from the past, it's reasonable to assume a "safety" premium will remain built into fixed-rate mortgages.  If you don't need this protection (and most don't assuming they have a hold-the-payment option) then strongly consider the potential savings of a variable rate.

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Note:  The Bank of Canada (our data source) doesn't database actual market rates.  Therefore we've made two assumptions.  For the variable rate we've assumed a 0.5% discount from prime rate.  For the fixed rate we've assumed a 1.5% discount from posted bank rates.  While not scientific, these assumptions are in the ballpark.

Mortgage Bytes

• Ontario's land transfer tax rebate for first-time homebuyers now applies to resale properties! An estimated 50,000 first-time buyers will benefit from the new program in 2008.
• CIBC's Benjamin Tal expects the Bank of Canada to "cut [interest rates] again in January 2008...to provide additional liquidly to the market."
• November was the first month where more condos were sold in Toronto than houses. Toronto's average condo and house prices are $347,207 and $429,673 respectively.
• Ontario's Bill 152 helps ensure that ownership of a property cannot be lost due to a falsified mortgage. It also now requires that two lawyers register a land transfer.
• If you're contemplating buying a U.S. property, the Edmonton Journal's Ray Turchansky suggests waiting until "next summer or fall."
• For the first time since 1994, more Canadians left Alberta than moved in. Alberta Bubble Story
• Last month, Scotiabank shelved its pilot subprime venture The Mortgage Authority (TMA). In their announcement, Scotia said they've "decided to limit any further expansion in the non-prime market segment."
• CAAMP members now get a 50% discount on Continuing Education Network courses.
• Genworth has 10 new free continuing ed. courses.
• If you're an AMP mortgage agent and want more words behind your name, you can now elect to be called a "Residential" and/or "Commercial Mortgage Specialist."  Only the commercial designation has any significant standards, however. The "Residential Mortgage Specialist" title can be had with just an AMP and a signature-- and therefore seems relatively meaningless.
• Need help understanding Ontario's new mortgage regulations?  IMBA training has it covered.

Happy Holidays from CMT

Enjoy this special time with your family, don't think about work, and don't overdo it on the egg nog!  We'll be back December 27.

Warmest wishes,

Melanie, Rob, Elizabeth, Rosa, Leslie, Gulraiz, and all the CMT elves.

Light in the Tunnel

Canada's asset-backed commercial paper (ABCP) market got an unexpected Christmas present yesterday. Investors finally agreed, in principle to a restructuring, offering hope that the beleaguered market will "soon" get back on its feet.

The surprise announcement is light at the end of the tunnel for ABCP investors, non-bank lenders, and mortgage shoppers alike.  If it works out, the restructuring could partly defuse Canada's liquidity crisis which has kept mortgage rates abnormally high for months.

The ABCP market has been closed for trading since August when subprime fears sent investors running for the hills.  The worry was that subprime assets would significantly devalue ABCP paper--even though we now know that only 9% of ABCP was subprime linked.  After missing two deadlines, observers were starting to wonder if this fiasco would ever be resolved.

The restructuring is expected to close by March 2008, but ABCP investors will need to wait a lot longer to get their money back.  They'll receive newly-minted notes in lieu of their old investments, and probably have to hold these notes until maturity (7 years on average) if they want to protect their principle.

Investors reportedly won't get any interest for holding the new notes which implies a 30% opportunity cost right off the bat.  On the other hand, if they sell now they'll only get a fraction of their principle.  Most of the new paper should be AAA-rated which will help boost confidence in the new market.

A news conference is scheduled for today and should lay out the remaining details.

Asset-backed commercial paper (ABCP), is a short-term debt instrument secured by a pool of assets like mortgages, accounts receivable, car loans, and credit-card receivables.

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Side Bar: Despite this good news, Conventree, the biggest former sponsor of ABCP, appears to be toast.  According to the Financial Post, Coventree said its business is no longer viable and there will be no further investment in it.

Rent or Buy?

Despite being in the mortgage business, we're the first to admit that renting entails a big cost difference (read savings) in a lot of cases.

Here's one example.  We know a couple that was considering purchasing this townhome in West Vancouver for $879,000 (this is the actual photo).  A similar unit down the road was listed for rent on Craigslist at $3300 per month.

On an $879,000 property with 10% down/6% interest/25-year Am., the monthly payment would have been $5061.  Add in property taxes and strata fees and it came to $6003 a month.

That's over $2700 more per month than same-style rental unit down the street.  That doesn't even speak to all the other purchase costs.

The moral is that you can do a lot with $2700 cash each month (which is about $4500+ before taxes).  The house would need to appreciate at least 3.7% a year for you to break even.  (That's been an easy target in Vancouver lately but who knows what the future holds).

Naturally, if you invested that $2700 savings each month the break-even point would be significantly higher. 

Food for thought...

Canadian Real Estate Magazine

Congratulations to KMI Publishing on the launch of Canadian Real Estate magazine.

This gorgeous, colourful, and glossy new mag hit newsstands last month and is aimed at Canadian real estate investors and first-time homebuyers.

According to KMI, Canadian Real Estate magazine will feature:

• Cutting-edge information to guide real estate investment decisions
• Helpful articles on property values and trends
• Mortgage advice
• Product overviews
• Investment strategies
• Surveys of Canadian real estate markets
• Real estate investor profiles

The layout and variety of articles is outstanding.  We'll be offering free subscriptions to all our investor clients and I imagine other mortgage planners might as well.

If you're looking for a last-minute holiday gift for your special real estate someone, here's KMI's subscription link.

Mortgage Bytes

• The big banks hiked most fixed mortgage rates about 0.20% today.
• The Bank of Canada's David Dodge feels the Canadian economy will have a weak 1st half of 2008 and a stronger 2nd half.  If he's right, the same may apply to mortgage rates.
• "More and more first-time buyers are [being] gifted with a significant down payment from their boomer parents, as an advance on their inheritance." -- Don Lawby, president of Century 21 Canada.
• Do Canadians have a false sense of security with our real estate market?  MacLeans article.
• From 1997 to 2007 Canadian house prices rose 78%. In the U.S. it was 165%. In England, 213%!  Who knew Canada was such a "bargain?"  (Source:  The Economist)
• 14% of Canadians say paying down their mortgage is their top financial priority in 2008, according to Manulife.
• Despite home prices doubling in the last 15 years, the Home Buyers Plan withdrawal limit has stayed the same.  CMHC's Will Dunning says it must be raised.
• Since 1990, the GST paid on new homes has jumped 95%.
• GE Money is axing its "MasterCard with every Mortgage" program Dec. 31, 2007. Client interest was too low.
• Statistics Canada’s mortgage-interest cost index was up 7% in November compared to a year earlier.
• 2.6% of Canadian rental units were vacant in October--the same ratio as last year.  If you can believe it, CMHC says idyllic Kelowna, BC actually had 0.0% vacancy!  Windsor, ON was tops at 12.8%.
• Canada's most expensive rentals are around Fort McMurray, AB where $2,085 will lease you a 2-bedroom apartment. The most expensive big city is Calgary, which happens to be the (new) best Canadian city to live in according to the Conference Board of Canada.
• Are Canadian lenders curtailing lending in the wake of big bank writedowns (like CIBC's)?  "The short answer is no," says Jim Murphy of CAAMP.  (Bankrate story)
• Quest Capital, who just launched last week, wants "to become Canada's largest Mortgage Investment Corporation."
• Scotiabank's mortgage market share increased 0.15% in 2007.  They attribute that to "strong growth" in the branch and mortgage broker channels. 0.15% might be the weakest "strong growth" we've ever seen.

Rental Property Investing

69% of Canadians think owning a rental property is a "savvy investment" according to the Star.  Based on all the interest we're seeing in new rental mortgages, we're not surprised.

But it's not all peaches and cream, especially in Ontario.

Real Estate lawyer Joe Hoffer says Ontario's Residential Tenancies Act entails the strictest landlord regulations "probably in North America."  The Act, which governs Ontario's 1.35 million rental units, affords tenants several pages of rights.

As a result, the Star has these suggestions for any aspiring landlords:

• Know your tenant's rights, and know what you can't do as a landlord
• Ensure vendors provide full disclosure of compliance with building and fire codes
• Check with the Landlord and Tenant Board to ensure there's no disputes on the property you're buying
• Use a lawyer that's done several multi-unit property closings and can advise on rental pitfalls

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Some additional resources for prospective landlords...

• FRPO: Resources for property owners/managers with "free" legal advice for members
• Rent Check: For checking tenants' credit reports
• Landlord's Self-Help Centre: A non-profit serving Ontario landlords

Missed Deadline Puts Rates in Limbo

The restructuring of Canada's troubled asset-backed commercial paper market has been pushed back, again--this time until the end of January.  It's the 2nd time the restructuring deadline has been missed.

As a result, some non-bank lenders may continue to have higher capital-raising costs through at least early 2008. That reduces the odds of any material reduction in mortgage rates before the Bank of Canada's January 22, 2008 meeting.