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The Latest in Mortgage News – House Prices Under the Microscope

For homebuyers and homeowners alike, all eyes have been on the housing market in recent months waiting to see where house prices are eventually headed.

With house prices already cooling on average across the country, particularly in and around the Greater Toronto Area, some are speculating that the chill in the market could continue well into the second half of the year.

Signs of a Prolonged Housing Slump?

The Canadian Real Estate Association reported that the average sale price in April declined by 11.3 per cent from its peak a year earlier to $495,000, while home sales were 13.9 per cent.

BMO Chief Economist Doug Porter noted that sales are now down 21.7 per cent in adjusted terms from the record high in December, just before the new mortgage stress test came into effect.

The lower home sales have resulted in a drop in listings, a sign that sellers are waiting for prices to pick up again before selling, according to Porter.

“Notably, the sag in April sales was accompanied by an even bigger pullback in new listings, in a sign that potential sellers are unimpressed with the prices on offer,” he wrote in a recent note.

Meanwhile, during its second-quarter earnings reporting, CIBC says it expects a drop in mortgage originations in the second half of the year due to the mortgage stress test that came into effect January 1.

“We expect there to be an origination decline in the 50 per cent range relative to the same period last year,” Canadian retail banking head Christina Kramer said in a statement.

Average Cost of Government Housing Policy is $113k, Report Says

“Restrictive” government housing policies have driven housing costs up an average of $113,000 across Canada.

That’s according to a recent C.D. Howe Institute report entitled “Through the Roof: The High Cost of Barriers to Building New Housing in Canadian Municipalities.”

The report says barriers to building more single-family housing supply have resulted in homebuyers paying an extra $229,000 per house between 2007 and 2016 in the eight most restrictive cities in Canada. That premium is about $113,000 for a house in the GTA, $113,000 on average across Canada, and a whopping $600,000 for the average house in Vancouver.

“Recent policies—such as taxes on foreign buyers or new federal mortgage rules—have focused on curtailing the demand for housing, instead of taking meaningful steps to increase the supply,” writes co-author Benjamin Dachis, adding that policies such as zoning rules, restrictions on developing agricultural land, and development charges directly influence both new and existing housing prices.

“A well-functioning housing market results in the market price of housing being close to the feasible cost of constructing it,” the report says.

Home Capital secures cheaper credit line from two Canadian banks

In other news, Home Capital announced last week that it had replaced its $2-billion emergency funding facility from Berkshire Hathaway Inc. with a $500-million standby line of credit from two unnamed Canadian banks.

The alternative mortgage lender confirmed the commitment to its subsidiary Home Trust for the two-year secured line of credit.

The terms of the deal stipulate that Home Capital will pay a 0.75-per-cent up-front commitment fee, a 0.6-per-cent annual standby charge on any unused funds and an interest rate on drawn funds equal to the Canadian benchmark rate plus 150 basis points.

Under the previous deal with Warren Buffet’s Berkshire Hathaway, which matures in June, Home Capital is paying Berkshire a 1-per-cent standby fee on the $2-billion credit line and would pay 9-per-cent interest were it to draw funds.

Home Capital CEO Yousry Bissada told shareholders that Home maintains a “very good relationship” with Berkshire. In an interview with the Globe and Mail he added that “Berkshire’s view was [the credit facility] is not their sweet spot, this is not an area of expertise for them.”