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What to do, what to see? In Port Alberni, BC

Calgary’s housing market making a dramatic comeback

Posted on Jun 27, 2014 in Mortgage Market Updates and News

Garry Marr
http://business.financialpost.com/author/garrymarr/
Financial Post


The Calgary housing market is so hot that an economist reported Tuesday that only 15 condominiums in the city remained built and unsold last month.

It’s been a dramatic comeback for the oilpatch’s housing market which saw prices peak in 2007 with that high only recently reached again.

“Those people who bought at the peak just barely got out of the ditch,” said Doug Whitney, president of the Calgary chapter of the Canadian Home Builders’ Association.

He said now that people are out from under water, they are ready to sell and move up which should help create inventory and relieve some pressure on the new home housing market.

Sal Guatieri, an economist with Bank of Montreal, issued a warning to anyone thinking of moving to Calgary for work.

“Thinking of moving to Calgary’s red hot, job-spinning economy and settling right into a brand spanking new home? Good luck. The available supply of completed new units dropped below 500 for only the third time on record (back to 1992) in April, and only 15 new condos were on the market,” Mr. Guatieri said in an economic note.

He pointed out the resale market has been just as tough for prospective buyers with the benchmark price of a home up 10.6% in May from a year earlier.

The Calgary Real Estate Board did say this month that while market conditions continue to favour the seller, there is some sense supply is improving. May new listings were up 16.5% from a year earlier.

“Strong sales activity is a reflection of improving fundamental conditions such as a growing population, favourable lending rates and rising wages,” said chief economist Ann-Marie Lurie with CREB, in a statement on the market.

Mr. Whitney said there has been a shortage of serviced land for builders to put new developments on and that has contributed to supply problems.

“Most of it has been just being able to put shovels into the ground to meet the increase in the velocity in demand,” he said. “The reality is there are 12,000 approved lots in the city, it’s a matter of getting things going.”

Mr. Guatieri said there are just so many people moving to Calgary for work that the housing market cannot keep up.

“There were over net 100,000 people moving to Alberta from other provinces last year from across Canada and other countries,” said the economist. “I’m assuming a good portion of those people ended up in Calgary.”

The attraction is 4% annual job growth and a 5% unemployment rate. “Those type of numbers just suck people in like a vacuum, you can’t build homes fast enough when your population grows like that,” said Mr. Guatieri, adding if prices get too out of line it could turn people off from moving to the city.

There’s not much room in the rental market either based on the latest set of numbers from Canada Mortgage and Housing Corp. which found the vacancy rate in October in Calgary was around 1% for condominium rentals.

One byproduct of the rising prices could be rising debt. A report from credit agency Equifax Inc. found demand for credit in the fourth consecutive quarter was higher in Western Canada than any other region in the country.

“The economic indicators do look a little better in the West,” said Regina Malina, senior director, decision insights, Equifax Canada. “When people feel confident about their financial situation, unemployment is low and income is high and the forecast for the region in terms of the economy is positive, it wouldn’t be surprising that people would be more comfortable taking [debt] on.”


Here comes the echo boomer to save the housing market

Posted on Jun 26, 2014 in Mortgage Market Updates and News

Garry Marr
http://business.financialpost.com/author/garrymarr/
Financial Post


There’s a new kid in town ready to save Canada’s housing market and maybe even the economy — at least for a few more years.

A new report says that Canadian residential real estate has been getting a huge boost from so-called echo boomers, those in the 20-38 age bracket.

“The Canadian housing market keeps soldiering on and, while much focus is cast on brash calls of overvaluation, mortgage rate wars and mortgage rules, demographics are playing a less-publicized yet important role,” said Bank of Montreal economist Robert Kavcic, in a report released Thursday.

“The Baby Boom generation grabs most of the attention on this front, but their children, the echo boomers, pack a heavy economic punch as well.”

Even though there are just under 10 million Canadian Baby Boomers aged 49-67, they are actually outnumbered by those aged 20-38.

In an interview, Mr. Kavcic said the emergence of the echo boomers bodes well for the overall economy but, like housing, the tide will eventually turn because the next cohort coming through simply isn’t as large.

“For the next couple of years, there is enough population to support the retiring population but when you look out past 2018, the bulk of the Baby Boomers are approaching 65 and behind the echo boom there is a significant dip in the population,” he said.

Fertility rates among Boomers has been lower than for their parents, resulting in fewer children. But the gap has been filled by immigration which the economist said has been concentrated in the echo boomer age group.

While there were other factors that coincided with a housing downturn in 1989, Mr. Kavcic noted there was a huge plunge in population growth in the 25-34 age group in the 1990s.

“Interestingly, it was only when this age group began to expand again on a sustained basis (around 2002) that the next bull market really began, in part because of a pickup in immigration, but also helped by the aging of the echo boomers,” he wrote in the report.

The problem is what comes next. He says we’ve got a few more expansion years in the housing market based on this age cohort but there will be some stagnation that starts in 2018.

“From a strictly demographic perspective, that would place us around the 7th inning of the secular bull market in Canadian housing, before conditions become unfavourable around the turn of the decade,” wrote Mr. Kavcic. “The tide is going to turn.”

The Baby Boom generation grabs most of the attention on this front, but their children, the echo boomers, pack a heavy economic punch as well

He said policy makers should be concerned about full-time employment compared to the over-65 population. “It’s holding up okay for now. But it’s going to roll over.”

Doug Norris, chief demographer with Environics Analytics, agrees the echo boomers have helped prop up the housing market but he believes immigration is probably as much a part of the story.

“If the numbers continue, we will have the upward pull because people are coming into the country at ages in which they form households and families,” said Mr. Norris. “I think you’ve got another five years of the echo boom.”

He says immigration should probably be considered for its impact on housing and the economy separately from the echo boom. He said the impact of immigration is “going to continue long after the echo boom is gone.”

Phil Soper, chief executive of Royal LePage Real Estate Services, said his company did a survey on real estate attitudes last year and found some echo boomers have bought into the dream of owning a detached home in a suburban neighbourhood.

“It was a surprise to us because we expected more of propensity to choose urban living,” said Mr. Soper, adding those attitudes should continue to drive prices of single family homes.

James Mckellar, director of the program in real estate and infrastructure at York University, says for the past decade people have been predicting a bursting real estate bubble but it hasn’t materialized because there isn’t enough supply to meet demand and there won’t be any time soon.

“They are not building any more existing neighbourhoods,” he said. “Condo owners are going to look to existing neighbourhoods, that’s pent up demand that is going to come from condos.”


What does the future hold for CMHC?

Posted on Jun 25, 2014 in Mortgage Market Updates and News

by Justin da Rosa
http://www.mortgagebrokernews.ca/authors/justin-da-rosa-175698/
Mortgage Broker News


The Canada Mortgage and Housing Corporation (CMHC) announced further changes to its insurance offerings Friday, providing even more fodder for brokers to speculate about the future of the crown corporation.

“I think the goal is to eventually have the private insurers take over a larger market share,” Andrew Libby of The Mortgage Makers told MortgageBrokerNews.ca.

CMHC announced it will nix its loan insurance for the financing of multi-unit condo construction and that it will align its low-ratio product with its high-ratio insurance by implementing maximum house prices, amortization periods and debt servicing ratios, effective July 31.

“The changes are a business decision designed to increase market discipline in residential lending while reducing taxpayers’ exposure to the housing sector through CMHC,” an official release from the crown corporation reads. “They also support the government’s continued efforts to adjust the housing finance framework to restrain growth of taxpayer-backed mortgage insurance, as noted in Economic Action Plan 2014.”

It’s a move that will surely allow the two private mortgage default insurers to grab a larger chunk of the market share.

“CMHC helps Canadians meet their housing needs and contributes to the stability of the housing market and finance system,” said Steven Mennill, Senior Vice-President, Insurance. “The changes announced as part of the review ensure that CMHC’s products and services are aligned with these objectives.”

It remains to be seen whether Canada Guaranty and Genworth follow suit but, in a perfect world, Libby thinks the government should back off and allow the two private insurers to decide their own parameters for lending requirements, instead of instituting sweeping government regulation changes.

“The changes from 2010-2012 were made to stop the private insurers from making their own rules,” Libby said. “They made regulation changes that should have only applied to the CMHC.”


OECD calls for Canada to shift mortgage risk from taxpayers to private-sector

Posted on Jun 24, 2014 in Mortgage Market Updates and News

Gordon Isfeld
http://business.financialpost.com/author/fpgordonisfeld/
Financial Post


OTTAWA • Despite aggressive moves by the federal government to limit consumers’ exposure to an overheated housing sector, a major global think-tank is warning Ottawa that even tougher measures are needed to protect taxpayers.

In particular, the government should gradually reduce its share of the mortgage-insurance market and transfer more of the risk to the private sector, the Organization for Economic Cooperation and Development said Wednesday.

Insurance provided by Canada Mortgage and Housing Corp. is currently fully backed by Ottawa for those loans that come without at least a 20% down payment by the buyer.

Also, the Ottawa-based agency can now insure mortgages up to a limit of $600-billion. The OECD suggests that ceiling could gradually be lowered and the private-sector contribution raised to $300-billion.

“Over the longer run, the insurance activities of the CMHC could be privatized, shifting the government’s role to one of guaranteeing only against catastrophic losses,” the Paris-based OECD said in a report presented to the International Economic Forum of the Americas in Montreal.

Ottawa has already intervened four times in the past five years to cool the housing market — fired by record-low lending rates — by tightening lending rules and limiting the length of mortgages.

Recent government moves have reduced the maximum period on government-insured mortgages to 25 years, and lowered the amount homeowners could borrow against their mortgage when dealing with commercial banks.

Ottawa has also hounded commercial banks — to limited success — not to cut mortgage costs even further. The concern is that already heavily indebted consumers may not be able to meet their loan payments, especially when interest rates begin to rise above the rock-bottom levels experienced in the recession.

Speaking in Montreal, OECD secretary general Angel Gurria said “we do not expect to see a generalized crash in house prices” in Canada.

“The quality of mortgage loans remains high, and macro-prudential regulation has significantly slowed credit growth,” he said in the text of his address. “Risks remain, however.”

The condominium sector, especially Toronto, “looks overbuilt.”

“And high debt levels may put some households under financial strain as interest rates rise. Given the government’s backing of a large share of mortgage loans, taxpayers are highly exposed in the event of a major shock to housing markets.”

Through the CMHC, the government also recently stopped offering mortgage insurance for condominium developments — especially in Toronto and Vancouver — that have led the way in price increases and fanned worries that over-building would lead to a much-expected housing bubble.

That’s something Ottawa and the Bank of Canada have warned presents the biggest risk to the economy.

Finance Minister Joe Oliver said the Conservative government “has taken prudent action in the past to ensure our economy remained stable while limiting consumer indebtedness and taxpayers’ exposure to the housing market.”

“We will continue to monitor the market closely,” Mr. Oliver said Wednesday in an emailed statement from New York, where he was attending the North American Energy Summit.

“The CMHC and the Bank of Canada have both predicted a soft landing for the housing market.”

In its report, the OECD said that, “as in many countries, real house prices have increased substantially over the past decade.”

“Following an almost uninterrupted boom, they have reached record levels relative to incomes,” it said. “This has fueled debates over whether a bubble exists…. While house prices look remarkably high in certain markets, the probability of a major broad-based correction appears low.”

But David Madini, chief economist at Capital Economics in Toronto, said “clearly, it’s a major risk.”

“The government is really just coming full circle. The rules they are tightening up now are the very same rules they relaxed in the early 1990s and the past decade,” Mr. Madini said.

“I think this is a classic case of closing the barn door after the horse has bolted. I think these measures will actually reinforce the downturn in the housing market. The reason why we think prices will ultimately fall is because of oversupply, tighter credit terms and, eventually, higher mortgage rates.”


Credit unions take on banks in mortgage wars with rates as low as 2.69%

Posted on Jun 23, 2014 in Mortgage Market Updates and News

Garry Marr
http://business.financialpost.com/author/garrymarr/
Financial Post


The latest salvo in mortgage rates wars among financial institutions appears to be coming from credit unions, free from federal regulation and ready to take on the banks.

DUCA Credit Union six weeks ago quietly opened up “DUCA Brokers Services” which has been funding brokers with rates as low as 2.79% on a five-year fixed rate loan. Some brokers are even eating into their own commission to buy down that rate to 2.69%.

At 2.69% for five years, it undercuts the efforts of the banks to compete. Bank of Montreal kicked off a new round of competition earlier this year with a 2.99% five-year rate and Bank of Nova Scotia went slightly lower to 2.97% for the same term.

“This new channel seeks to partner with the broker community as a virtual extension of our branches,” said Richard Senechal, DUCA’s chief executive, in an email.

DUCA is also guaranteeing its rate discounting within broker contracts to counter mild rate fluctuations. Based on the five-year government of Canada bond which mortgage rates are priced off, Duca’s spread is an almost unheard of 115 basis points.

The credit union is also not using underwriters in its broker service network but instead provides that network with certain guidelines to meet, DUCA itself employs people for fraud and number checks.

“This system allows for the efficiencies necessary for DUCA’s unequalled pricing,” said Mr. Senechal.

Rob McLister, editor of Canadian Mortgage Trends, said the DUCA model “is to cut out all the fat” and push more of the work onto brokers.

“Brokers are now widely posting below-market rates on mortgage comparison sites,” said Mr. McLister, who also runs the site http://www.ratespy.com. “Consumers increasingly see those hyper-competitive rates and ask their bank to match them. If their bank doesn’t match, more and more are taking their business to online brokers. Right now, online mortgage brokers are a speck of dust in terms of market share. But their impact on the market is disproportionately profound because lenders and consumers use their rates as benchmark.”

He says credit unions only have to answer to customers and shareholders and that could allow them to ultimately control a larger segment of the market over time. Credit Union Central of Canada, the national trade association of the industry, notes credit unions only have about 7% of the residential loan market.

But they do have the advantage of not being regulated by the Office of the Superintendent of Financial Institutions which last year implemented strict guidelines for loans with less than 20% down that included rules on better loan documentation, income documentation and tighter debt services ratios.

Peter Routledge, an analyst with National Bank who follows the industry, noted credit unions with loans that require mortgage default insurance are still subject to federal guidelines because companies in that sector like Canada Mortgage and Housing Corp. are regulated by OSFI.

“For the last two years and maybe like the next year it may seem like credit unions are getting an easier ride,” said Mr. Routledge, adding credit unions must also meet federal guidelines for any loans they want to securitize which narrows any advantage.

Ryan McKinley, senior mortgage development manager with VanCity a British Columbia credit union, said the the gap between federal and provincial rules does allow credit unions to compete on some products the banks can’t provide.

“Credit unions can offer some products that federal institutions can’t offer,” said Mr. McKinley, pointing to deals that allow cash back for down payment and longer amortizations.

Another aspect of credit unions not available from banks is an ability to share in dividends which ultimately lower your effective mortgage rate because you are getting cash back. VanCity’s 3.04% current five-year mortgage could be lower depending on its financial success.

“It does factor into the pricing,” said Mr. McKinley.

Meanwhile, the other factor that just might take rates even lower could be yields falling in the bond market.

Benjamin Tal, deputy chief economist with CIBC, wouldn’t rules out the possibility that rates could go even lower.

“In the long term, they’ll go up but I think they could shrink even more for now,” said Mr. Tal.


Vancouver realtors say there hasn’t been this much home buyer demand in three years

Posted on Jun 20, 2014 in Mortgage Market Updates and News

Garry Marr
http://business.financialpost.com/author/garrymarr/
Financial Post

Vancouver sales jumped 14% last month compared to a year ago but still remain 6.5% below the 10-year sales average for the month of May.

The Real Estate Board of Greater Vancouver said there were 3,286 sales last month in Greater Vancouver across the Multiple Listing Service, up from 2,882 sales recorded in May 2013. Sales jumped 7.7% from the 3,050 in April, 2014.

The board’s MLS home price index composite benchmark price for all residential properties in the metro region was up 4.3% in May from a year ago to $624,000.

“Home prices have experienced consistent yet modest increases in our region since the beginning of 2013,” said Ray Harris, president of REBGV, in a release Tuesday. “Our MLS statistics tell us that there’s more home buyer demand today than at any point over the last three years.”

The sales-to-active listing ratio is now 20.4% in Greater Vancouver, the first time is has been above 20% since June, 2011.

New listings for detached, attached and apartment properties reach 5,936 in Greater Vancouver in May, a 5% increase from a year ago. It was a 0.2% decline from a month earlier.

The total number of properties listed for sale on the MLS system in Greater Vancouver was 16,072, a 6.7% decline from a year ago and a 3.6% increase from a month ago.


CMHC WON’T INSURE HOMES WORTH MORE THAN $1M

Posted on Jun 19, 2014 in Mortgage Market Updates and News

Canadian Press / June 6, 2014
Advisor.ca


Canada Mortgage and Housing Corp. says it will no longer offer mortgage insurance for homes that cost $1 million or more, starting July 31, even if the buyer has made a deposit of 20% or more.

It’s a step further than rules introduced two years ago when then finance minister Jim Flaherty announced that CMHC would stop insuring mortgages on homes worth $1 million or more if the buyer borrowed more than 80% of the value. 

The Crown corporation says the changes announced Friday would have affected only about 3% of the mortgage insurance it provided last year for individual homes.

CMHC also announced it will no longer insure loans that are used to finance construction of multi-unit condominium projects, effective immediately. 

It says that type of insurance product was introduced in 2010, but CMHC hasn’t provided any to builders since 2011.

CMHC also says its mortgage loan insurance for condo buyers isn’t affected by the change.


How to prepare your home for a quick, profitable, summer sale

Posted on Jun 18, 2014 in Mortgage Market Updates and News

Melissa Leong
http://business.financialpost.com/author/mwleong/
Financial Post


After a brutal winter, the heat has finally arrived and with it, expectations of a hotter real estate market. The flurry of housing activity normally reserved for early spring is extending into the summer, industry experts say.

“The pent up demand from the winter is coming to fruition. As soon as listings come out, they’re being swallowed up,” Gurinder Sandhu, executive vice-president at RE/MAX’s Ontario-Atlantic Canada Division, says.

“For buyers there are more choice and for sellers there are more buyers.”

How you price your home and how you prepare its for sale are key.

“Price trends from one neighbourhood to the next can be very different,” Gregory Klump, chief economist at the Canadian Real Estate Association. “If you price your property too high, there is a chance it’ll sit on the market without offers.”

Here’s how three recent home sellers weighed their options, and came out with the sale price they were looking for.


1.
Original purchase price: $332,000 in 2002.
Asking price: $889,000
Sold on the first day: $889,000

Jennifer Lee, a 41-year-old public relations manager, had bought her 3,000-square foot home in Markham, Ont. brand new in 2002 for $332,000. The house had four bedrooms and four bathrooms. With the goal of moving her family to Toronto to be closer to work and loved ones, she put her house on the market on March 12.

What were your home selling goals?
“My goal was to get maximum value for the home because I was going to move into a much more expensive neighbourhood. I also had a very short timeline because I wanted to match it with my kids finishing the school year.”

Describe your home selling strategy.
“One of my strategies was to sell before I buy. [My brother] who has moved five or six times, said the stress he experienced buying a home first and then trying to sell his home was the worst stress of his entire life. Then you get into panicky mode: ‘I need to accept an offer.’ Then you get sellers regret: ‘Did I sell too cheap?’

We had looked at a home three doors down from us that was the exact same model that had sold last summer. They didn’t have a finished basement. It sold for $815,000. (We had spent about $50,000 to upgrade our basement.)

My agent told me that buyers in the market really like to bargain, so I thought I will price in a 5% to 10% buffer. My asking price was $889,000. I told my agent, ‘I don’t even want to hear an offer that is less than $850,000. In my head, I was thinking, I want $870,000 to $875,000.

We originally thought to hold off on offers; [our agent] said, let’s not lose momentum. If someone’s interested, let them make an offer.”

How did you prepare the home for sale?
“We significantly de-cluttered. We stripped out all of the closets and did some re-painting. There were some bold colours on the main floor that we neutralized. We replaced carpet in the basement with laminate and new carpeting. Our budget for clean up was $3,000.”

What did the home finally sell for in the end?
“We got an offer on the first day of the market for asking, no conditions.

“We do know that the buyer was from China and was moving to Toronto and was only in town for a week.”

Final thoughts on the process.
“I’d recommend not holding off on offers. If someone wants to offer, find out what they want to offer. You can always go back to people who’ve looked at the house and see if they’re interested.

In terms of preparations, don’t get pushed around by contractors who tell you that you need to paint eight rooms and replace all mirrors. Buyers can generally see beyond paint. You don’t have to redo your whole house.”



2.
Original purchase price: $122,500 in 2001
Asking price: $270,000
Selling price: $265,000

With Elisa Holland’s transient military career, which has included tours in Afghanistan, and her husband’s job as a consultant in Alberta’s oil patch, the couple has lived apart for eight years. They finally decided to list their Calgary home for sale on April 1 and move together to Kingston, Ont. They bought the two-storey townhouse with three bedrooms, one and a half baths and two parking spaces for $122,500 in 2001. They listed the 1,500-square foot property for $270,000.

What were your home selling goals?
“We wanted to put it at a fair price to sell quickly so we could buy a house in Kingston; it allowed us to buy our dream house. Kingston is a very stable market whereas Calgary is the exact opposite. My aunt and uncle have a fully detached house with a two-car garage in Barrie Ont.; it’s listed at the same [price] as our townhouse.”

Describe your home selling strategy.
“I had interviews with three realtors. You have to pick a realtor who understands your residence. The reason why we ended up going with Michelle [Russell, a realtor at Royal Lepage], she understands townhouse/condos and first-time buyers.

You want to make sure you have very neutral décor. You want it so that if someone else walks in, they don’t see that it’s your house but they can picture themselves there. If you have carpets, you want to take those up so it’s a clean line across the floor. If you have an area rug, it cuts up the space. If you have a pet, you want to remove all traces that you have one. Even before a realtor came over, I took photos and very harshly critiqued them.

Knowing when to put it on the market is key. Most people want to keep their kids in school and they’ll start looking in March/April.

What did the home finally sell for in the end?
Our price that we’d be happy with was anything over $260,000. We ended up with two offers: $263,000 and $265,000. We ended up selling it for $265,000, with fewer conditions (they didn’t want a home inspection) and they already had their financing in place.

Final thoughts on the process.
Go with your gut feeling, especially if you get multiple offers. Your realtor will give you a sense of what the buyer is like. The $263,000 offer that came in, I honestly felt sick to my stomach. I got a sense that there was something not quite right. Make sure you do your research on your realtor. Don’t always go by someone’s advertising. On the whole, the majority of good realtors will never have to advertise, it’s all word of mouth.


3.
Original sale price: $245,000 in 1995
List price: $689,000
Sale price: $700,000

Asking price After living in a two-bedroom bungalow in New Westminster for 19 years, Bob Harris looked at the backyard one day and said, “I just don’t want to do it anymore.” The 68-year-old retired union rep wanted to downsize. He had bought the house for $245,000 and listed it for $689,000. Meanwhile, he saw a two-bedroom condo that he liked and he put an offer on it.

What were your home selling goals?
“It seemed like a good time [to sell] in New Westminster; house prices were going up and condos were going down. The spread between the two was as good as it has been in a long time.”

Describe your home selling strategy.
“The rush was on. We got it ready to show within a few days – decluttered, depersonalized it.

My real estate agent Dave [Vallee] had sold a couple [of homes] in the same shape as mine; he had sold one for $683,000. We put it at $689,000, hoping to get some competing offers.

In less than a week, we had an open house on a Sunday. The next day there were three offers, all higher than the asking price…$692,000, $699,000 and $700,000.”

Knowing when to put it on the market is key

What did the home finally sell for in the end?
“Two of them were subject to financing. The [homebuyer offering] $695,000 had the money in cash. Her real estate agent was there that night at the house presenting the offer and she was waiting in the car. We said, ‘Would she be willing to move to $700,000 to meet the other offer?’ and she did.”

Final thoughts on the process.
“It helps to have a realtor who knows the area that you’re buying and selling in. In going to a lot of open houses, you’d go to ones where the realtors were from outside the area – so there were a lot of questions they couldn’t answer.

If something needs painting, paint it. I went to some places and they were messy. It just doesn’t make you necessarily want to buy. The place that I did buy ironically, the person had been relocated back east and said, ‘Take it as it is.’ They probably could’ve asked for more if they had done a few things.”


Reverse mortgages rising fast to deal with retirement shortfalls

Posted on Jun 17, 2014 in Mortgage Market Updates and News

Garry Marr
http://business.financialpost.com/author/garrymarr/
Financial Post


It could become a growing solution to our retirement savings problems, but opponents of reverse mortgages warn their spike in popularity could mean shrinking inheritances.

HomEquity Bank, which is owned by Birch Hill Equity Partners, and is behind the Canadian Home Income Plan, said reverse mortgages are up 26% year-to-date compared to the same period a year ago. It’s still a relatively tiny chunk of the 5.5 million mortgages outstanding, considering HomEquity only expects to issue about 3,000 reverse mortgages this year.

But is it a solution for people whose retirement savings don’t match their retirement spending? The interest costs, which are generally above market rates for a traditional mortgage, will ultimately eat into home equity and not leave much behind for heirs.

“A reverse mortgage is the last, last choice I consider for my clients,” says Lise Andreana, a certified financial planner with Continuum II Inc. who is based in Niagara-on-the-Lake. “It’s basically when they’re running out of money to live on.”

Jeff Spencer, vice-president of national sales for HomEquity Bank, says he’s heard it all before. He thinks it’s time Canadians start thinking about their home as part of their financial plan and incorporate a reverse mortgage into their strategy.

CARP, which represents retired Canadians, says two-thirds of the workforce — or about 12 millions working Canadians — do not have a workplace pension plan. Faced with a savings shortfall for retirement, their house can fill the gap.

“We think real estate needs to be treated very differently in a retirement plan. It’s not a passive asset but an active asset that is utilized at the start of retirement,” said Mr. Spencer, adding his company has created a new plan that starts delivering cash flow as soon as you retire as opposed to when you run out of cash.

The advantage of a reverse mortgage is you can take money out of your home and it is not taxed, which allows you to deplete your registered retirement income fund at a slower pace and potentially put yourself in a lower tax bracket. It might even help avoid clawbacks to Old Age Security by lowering your income threshold.

Canada Mortgage and Housing Corp. says reverse mortgages have been around since 1986 and generally allow you to take anywhere from 10% to 40% of the equity out of your house with the caveat that your interest rate will be about 150 basis points above the conventional rate for a five-year mortgage.

Mr. Spencer paints a scenario where a client might have a $1-million house paid off at 65 and qualify for a $350,000 mortgage. You could divide that amount over say 25 years.

“You might offset any type of interest you might accumulate on the reverse mortgage [with tax savings],” he says, acknowledging clients pay about 1.5 more percentage points above prime. “More importantly, it extends the horizon time on your portfolio.”

He says with life expectancy on the rise, this type of planning is going to become necessary or people are simply going to run out of money.

“When people retired at 65 and had a life expectancy of 75, we didn’t have to get too complicated with their retirement plan. They wouldn’t go through their investable assets even,” said Mr. Spencer. “But when you are retired as long as you are working, you need to utilize all of your assets.’

Plus, the real issue is people don’t want to leave their homes until they have to which is something a reverse mortgage accomplishes.

Ms. Andreana cautions if you do get a reverse mortgage, make sure both spouses names are on the contract because you can be pushed out after the spouse with the mortgage dies otherwise.

Still, she thinks the reverse mortgage could take off because people who are retired now are finding they are not making it financially. “They are in retirement for 10 years and their savings are running out and inflation is eating away at the lifestyle they’ve become accustomed to.”

Her recommendation is not the reverse mortgage but rather to sell your house outright if you can “stomach” the idea of moving. “You can only get so much money out of a reverse mortgage,” says the financial planner.

Phil Soper, the chief executive of Royal LePage Real Estate Services, agrees it is an expensive way to borrow but he can see the option making sense in some circumstances.

“You have someone who is older and quite sure they want to live in their home for an extended period of time and have limited other resources to draw upon,” he says, adding that the higher rate has to compensate for risk to the lender that your house could drop in value or you end up living in it longer than anticipated.

“In Canada, it’s been a pretty safe bet for reverse mortgage providers because over the long term, homes have risen 4% to 5% [annually],” says Mr. Soper.

As for the future, based on the strength of the housing market and the low savings rate, Mr. Soper says reverse mortgages just might become more popular.

“Conceptually, reverse mortgages are a way for people to consume the equity they have built up in their lifetime,” said Mr. Soper, who believes you provide for your children all your life so that home is yours. “If their wealth is tied up in their home, it will be something to consider.”


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CMHC stops offering mortgage insurance to condo developers

Posted on Jun 16, 2014 in Mortgage Market Updates and News

Andrea Hopkins, Reuters
 http://business.financialpost.com/author/reutersnp/
Financial Post


TORONTO — Canada’s federal housing agency will no longer offer mortgage insurance for condo construction, it said on Friday as it made further changes to its programs with the aim of cutting risks amid the country’s housing boom.

Canada Mortgage and Housing Corp (CMHC) also said it will no longer offer mortgage insurance for homes that cost $1 million or more, starting July 31, even if the buyer has made a deposit of 20% or more.

It’s a step further than rules introduced two years ago when then finance minister Jim Flaherty announced that CMHC would stop insuring mortgages on homes worth $1 million or more if the buyer borrowed more than 80% of the value.

The Crown corporation says the changes announced Friday would have affected only about 3% of the mortgage insurance it provided last year for individual homes.

The changes are the latest made by the federal government and its agencies to tighten mortgage lending and mortgage insurance rules to make it harder for homebuyers, builders and developers to take on too much housing-related debt.

The changes are designed to increase market discipline in residential lending while reducing taxpayers’ exposure

“The changes are a business decision designed to increase market discipline in residential lending while reducing taxpayers’ exposure to the housing sector through CMHC,” the agency said in a statement.

“They also support the government’s continued efforts to adjust the housing finance framework to restrain growth of taxpayer-backed mortgage insurance.”

The shift is not expected to have a material impact on the mortgage market, said Geoffrey Kwan, a banking analyst at RBC Dominion Securities.

CMHC introduced its multi-unit condo construction mortgage insurance in 2010 to help developers get financing as they built their projects, but the agency said it has not provided any such insurance since 2011. Its total outstanding insurance-in-force for condominium construction was about $378 million as of March 31, a fraction of the agency’s total $557 billion insurance in force in 2013.

On the second change, CMHC said low-ratio insurance that falls outside the revised parameters accounted for about 3% of its total homeowner business volumes in 2013, and thus should not have much of an impact on the market. Mortgage insurance is not required when borrowers have a down payment of 20% or more, but lenders often buy insurance on low-ratio loans anyway as part of the approval process.

Under the changes, the low-ratio insurance product will be aligned with CMHC’s high-ratio product, with the maximum house purchase price of $1 million, the amortization period capped at 25 years, and the total debt service ratio limited to 44%, effective July 31.

Insurers who compete with CMHC include Genworth MI Canada and privately owned Canada Guaranty Mortgage Insurance Co.


© Thomson Reuters 2014, with files from the Canadian Press


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