1. One of the most popular questions in Canada right now is: When will home prices fall? We won’t insult you with a prediction, but here’s a fact of note. Most likely, the country will need a significant build-up in housing inventory before prices head south in any meaningful way. Data from Edge Analytics suggests that prices don’t tend to fall materially when there’s less than five months worth of housing inventory out there (we’re at a measly 2 months currently).
2. Canada’s average discounted 5-year fixed rate is roughly 2.07% as we speak. Yet, regulators make bank borrowers prove they can afford payments at the greater of 5.25% or the mortgage contract rate plus 2 percentage points. That “minimum qualifying rate” will probably remain at 5.25% through year-end. That’s because regulators pledged to revisit it typically every December, and mortgage rates likely won’t run high enough by then to make the contract rate +2 percentage points higher than 5.25%. It’s possible rates eventually could, however, which would give an edge to variable rates in terms of qualifying purposes.
- DOT Tip: If you signed a purchase agreement before June 1, there are plenty of lenders who will still use the old (and easier) 4.79% MQR to qualify you. That also applies to borrowers who bought pre-construction homes before June.
3. There’s been minimal demand for 1- to 3-year mortgage terms as of late. In fact, the demand has been as weak as we recall seeing it, based on click volumes for these terms. There’s no mystery as to why. Fewer people want a short-term fixed mortgage when:
(A) the interest spread between them and 5-year fixed rates is only 0.14%-points, give or take
(B) variable rates are up to 0.40%-points cheaper and have just a 3-months' interest penalty
(C) the Bank of Canada is expected to start hiking rates as soon as next year, leaving short-term borrowers with little rate protection.
4. Residential investment contributed a whopping 3.9 percentage points of the first-quarter's 5.6% GDP gain (annualized). “Residential investment now accounts for 10.3% of nominal GDP, which, strikingly, means it is a larger component than business investment” for the first time since 1961, reports Capital Economics.
Rates are based on a home value of $400,000
5. "We expect intense upward price pressure to persist nationwide in the near term,” says RBC. “We’ll…need more sellers to step in. And higher prices could well be the biggest catalyst for that.”
6. The latest data from TransUnion shows mortgage originations up 26% (year-over-year as of the latest data in Q4). It's largely due to “pent-up market demand,” “low interest rates” and “refinance activity,” the credit reporting agency says. Existing customer renewals accounted for 55% of mortgage activity. Non-prime mortgage sales fell 24%.
7. Are you a self-employed mortgage applicant who lost income during the pandemic? Normally, if your income rose in the most recent year, a lender will accept a two-year average of your self-employed income from your tax returns. Otherwise, lenders generally use the lower of your last two years of income. Because of employment anomalies caused by Covid, however, some lenders are allowing a three-year average instead (2018, 2019 and 2020). The result is more buying power for some of these affected borrowers.
8. Canada's home-price explosion has led to three mortgage trends, CIBC economist Benjamin Tal recently told M3 Group mortgage brokers:
- gifting of down payments (by family members) is “up by 20-30%.”
- parents being used as guarantors is “rising dramatically.”
- there’s been a “significant increase in homeowners using basements to generate income.” (People are doing everything possible to qualify, he says.)
9. CMHC’s decades of dominating Canada’s mortgage insurance business are officially over. According to estimates from RBC Capital Markets, CMHC has “slipped to #3” for the first time ever, with 23% market share in new insurance premiums written last quarter. Marker leader Sagen holds about 44%. Canada Guaranty has 33%. CMHC’s loss is largely a result of its 2020 decision to unilaterally tighten underwriting criteria, an “overly cautious” decision in hindsight, says RBC. Most insured mortgage borrowers couldn’t care less, however, as default insurers are an afterthought. In fact, many would prefer Sagen and Canada Guaranty if asked, because those latter two effectively allow bigger mortgages given the same income.
