You could easily pardon anyone looking for a new condominium today for having a case of the jitters. Every day we are bombarded by U.S. reports of a housing market meltdown. CNN headlines a survey that shows one of every 452 homes in the United States is in foreclosure.
The media is chock-a-block with stories about a credit crunch, banks reluctant to lend to other banks, let alone new-home buyers.
Now take a deep breath, sit down and listen up. To paraphrase Dorothy’s line in The Wizard of Oz: This isn’t Kansas any more.
The simple fact is that any comparison between the Greater Toronto Area condo market and what is happening in the United States is about as valuable as discussing whether Batman or Spiderman would come out on top in a fight. It has no relationship to reality.
Yes, sales are down, but then again, last year was a blip, an anomaly, a Yukon gold rush. The market, experts say, is returning to the levels of more normal times.
That is probably good news. It may mean the rise in prices will slow or, even better, stall. It also means buyers will have an enormous range of choice. There are more than 330 different projects on sale in the GTA right now — the most ever.
And, as a shiny red cherry on top, mortgage money is still available for most buyers and at reassuringly low rates.
Granted, lenders are unlikely to offer the discounts on rates across the board that they did last year in the frenzy to do business. First-time buyers with anything less than 5 per cent cash to put down may face a tough time. New Canadians with no credit history in this country can expect to face challenges, and the 40-year amortization period is as dead as Sarah Palin’s hopes of being a heart beat away from power.
Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals, which represents brokers, lenders and mortgage insurers, says it is, in fact, business as usual.
“There is a plentiful supply at reasonable rates for any borrower who can qualify,” he points out. “Condos have taken over from single-family housing as the major force in the residential market and the industry has recognized that.
“There is no issue with supply, and those lenders that focused on subprime mortgages have left the market.”
Five-year, fixed-rate mortgages are available starting at 5.55 per cent and variable-rate mortgages are in plentiful supply at about one percentage point above prime.
“You can occasionally negotiate a discount on fixed-rate mortgages if you have great credit, but discounts on variable-rate mortgages have disappeared,” Mr. Murphy says.
At the Royal Bank of Canada, a spokesperson says it is business as usual in the mortgage department.
“RBC has not seen a decline in mortgage applications in the last four months,” the spokesperson says in an e-mail. “We continue to guarantee rates on new purchases for 90 days, and mortgage rates over the last four months have remained relatively steady.”
At HSBC Bank Canada, Loree Gray, vice-president branch banking for Toronto, says lending to condo buyers continues as strong as ever — to those who meet credit requirements.
“We look for strong employment, enough income to service the debt (between 32 and 45 per cent of income), an acceptable down payment and a strong credit history,” she explains. Buyers who meet all of those tests and can plunk down 20 per cent of the purchase price as their down payment will be welcomed with open arms by lenders, the bankers say.
Less than that 20 per cent down, however, means you likely will have to seek an insured mortgage from Canada Mortgage and Housing Corp. In that case, the federal government, acting through third-party insurers, guarantees the mortgage will be repaid if the borrower defaults.
These insurers charge between 2 and 3 per cent on top of the mortgage interest rate, and, this fall, CMHC set out new rules for mortgage insurance.
As Mr. Murphy explains, there are three basic guidelines borrowers should be aware of.
First, condo buyers must be able to make a down payment of at least 5 per cent of the purchase price, but at the same time, they can borrow that if they can find a lender willing to take the risk.
Second, CMHC says no more 40-year amortization periods. Now, 35 years is as long as it is willing to go.
Finally, borrowers must have a credit score higher than 600. (This score is a statistical analysis of a person’s credit file.)
HSBC’s Ms. Gray offers a tip to new Canadians. If, in their country of origin, they were customers of a bank with offices in Canada, such as her own, that credit score may not prove to be a hurdle.
“If we know you and if you have been a good customer in the past, even if you have no credit history in Canada, our comfort level rises,” she says.
In fact, establishing a track record with a bank in anticipation of some day needing a mortgage is a great idea for anyone, she adds.
“Not only does it give us the level of comfort we need to make that loan, … it also gives insight into which product might best suit your needs.”
OTTAWA — The Bank of Canada has dramatically cut its key interest rate by a hefty three-quarters of a percentage point, blaming a “broader and deeper” global slowdown for driving Canada into recession.
The central bank’s overnight lending rate now stands at 1.50 per cent, a generational low and the likes of which have not been seen since the 1950s.
Canada’s central bank joins a host of other central banks in making larger-than-usual rate cuts as their economies quickly fall victim to a stunning slowdown in global demand, led by a deeply troubled U.S. economy.
“While Canada’s economy evolved largely as expected during the summer and early autumn, it is now entering a recession as a result of the weakness in global economic activity,” the bank said in its first clear-cut declaration of a country in recession.
Economists had expected a somewhat smaller half-percentage-point cut, although markets were factoring in the larger cut delivered by the bank Tuesday.
The last time the Bank of Canada cut its key rate so deeply was in the panic following the terrorist attacks of September 2001.
This time, the global recession and lower commodity prices are choking off the amount of money flowing into the country and undermining confidence, prompting consumers and businesses to have second thoughts about spending, the bank said.
The bank warned that global conditions are getting worse.
“The outlook for the world economy has deteriorated significantly and the global recession will be broader and deeper than previously anticipated.”
Financial markets around the world are still “severely strained,” the bank noted, and even though governments are doing what they can to thaw the freeze in credit, “it will take some time before conditions in financial markets normalize.”
Global growth should eventually benefit from rate cuts and fiscal stimulus around the world, the bank noted.
The bank did not say when it anticipates an end to the Canadian recession. But it said that the depreciation of the dollar and slowly improving credit conditions should help.
Most economists figure the Canadian economy will contract for at least two consecutive quarters, and many peg the recession dragging on longer than that – a sentiment bolstered by the loss of 71,000 jobs in November.
Still, the Bank of Canada did not make any promises for future rate cuts. Rather, the bank pointed out that it has now cut rates by 1 1/2 percentage points in the past two months, and indicated it will keep an eye on developments to decide whether more cuts are needed.
“The bank will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required to achieve the 2 per cent inflation target over the medium term,” the statement said.
Rising inflation is no longer an obstacle to more rate cuts, economists say, and the bank also signaled that its own outlook is for a lower rate of inflation than forecast just six weeks ago.
The central bank’s key rate is normally a benchmark for other rates of lending to households and businesses. However, those lending rates have not come down as steeply as the central bank’s rate over the past year and a half, because of the global credit crisis.
Residential mortgage consumers remain remarkably positive as they weather the financial storm, according to a report released today by the Canadian Association of Accredited Mortgage Professionals (CAAMP). Attitudes towards local conditions have shifted only slightly with 38 per cent of Canadians believing now is a good time to purchase and 32 per cent believing it is a bad time. Mortgage arrears remain low and steady at .28 per cent and an overwhelming 84 per cent of home owners are satisfied with their mortgages. The information was gathered by Maritz from an online survey of over 2,000
Canadians in mid-October and analyzed in conjunction with CAAMP Chief Economist Will Dunning.
Canadians do expect housing prices to fall: 35 per cent, more than twice as many as last fall, now believe prices will drop; half of those surveyed gave a neutral answer while the number who thought prices would go up fell from 40 per cent to 20 per cent. Westerners, who have endured particularly hot housing markets, are most negative, and in British Columbia, 48 per
cent of those surveyed said they expect prices to fall, far above the national average. “As we confront these challenging times, borrowers foresee changes in their local housing markets, yet remain confident in a stable Canadian mortgage system,” said Jim Murphy, AMP, President and CEO of CAAMP. “CAAMP anticipates mortgage credit growth to slow, but remain relatively strong, surpassing the $1 trillion mark by 2010.”
Despite the traumatic American mortgage fall out, Canada has managed to steer clear of deflated markets. The Canadian system is supported by low and steady interest rates, better underwriting processes, different products and normal re-sale activity levels. “Canada is a financially conservative country where consumers are able to meet the terms of their mortgages
and buying decisions are based on affordability,” said Dunning. “This contributes to a solid real estate market that will not experience the same drop off we see south of the border.” Housing equity positions are strong in Canada with a growing trend of re-financing mortgages.
About one in five borrowers took out an increasing amount of cash from their mortgages, with the average draw rising 20 per cent to $41,000 compared to last year. Fifty-six per cent of respondents said they used this money, which totals $18.5 billion nationwide, for debt consolidation and repayment; 30 per cent of these funds went towards home repair and
renovation.
New home buyers took advantage of alternative mortgage products - half of new mortgages taken out in the last year were for amortizations longer than the traditional 25 years, an increase of 13 per cent. Longer term amortizations now account for 16 per cent of all outstanding mortgages and six per cent are 40-year terms. The federal government has now introduced
stricter regulations on insured mortgages. CAAMP’s survey found Canadians had low awareness of the new regulations; however once explained, 60 per cent supported the changes.
The “Annual State of the Residential Mortgage Market in Canada” report contains a wealth of additional industry data, including regional breakdowns of survey responses, where Canadians obtain their mortgages, the role of job creation in fuelling Canada’s housing market, and additional insight into housing forecasts in Canada and the United States. For a full copy of the report, please visit: www.caamp.org.
