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The Mortgage Rules They Are a Changin’ - Monday Morning Interest Rate Update (June 25, 2012)

David Larock in Mortgages and Finance, Home Buying, Toronto Real Estate News

Last week federal finance minister Jim Flaherty surprised real-estate market stakeholders by announcing a fourth round of changes to the rules that are used to qualify borrowers who have less than 20% equity in their property (commonly referred to as high-ratio borrowers).

You would have thought that Mr. Flaherty was announcing the arrival of the Four Horsemen of the Apocalypse when reading the reactions of most mortgage industry insiders, which I find surprising given that the first three rounds of rule changes did not broadside our real estate markets, as had been predicted each time, and have in fact proven quite prescient in hindsight.

Let’s quickly review how we got to this point:

Monday Morning Interest Rate Update (June 18, 2012)

David Larock in Mortgages and Finance, Home Buying, Toronto Real Estate News

While bond-market investors will be focused on the Greek election results this morning, they will shift their focus back to the Spanish elephant in the room soon enough.

Spain’s $100 billion euro bank bailout was hastily announced two weekends ago in a desperate attempt to restore investor confidence not just in Spain, but in the euro-zone’s other imperiled peripheral countries and in the whole euro-zone experiment itself. So far it has failed miserably.

Like all of the other emergency measures concocted by the euro-zone’s leaders, Spain’s bailout announcement was more than a day late and a more than a few billion euros short. The anticipated post-announcement bond-market rally was over before most North Americans had finished their Monday morning coffee. In the week just passed, Spanish ten-year bond yields soared 66 basis points higher and closed at 6.87% on Friday. That leaves Spanish ten-year bond yields perilously close to the 7% level which has been the point-of-no-return for every other already bailed-out euro-zone country thus far.

Toronto’s Real Estate Market Starts to Cool Down

John Pasalis in Toronto Real Estate News

Toronto’s real estate market is finally starting to show some signs that things are cooling down as more houses come on the market and demand begins to soften slightly.

The real estate market typically gets off to a slow start in January and February each year and the competition tends to gradually heat up as we move closer to the peak months of April, May and June.

Things have been a bit different this year. The market got off to a very quick start and as early as January we were noticing an unseasonably high number of multiple offers for houses. Since May we have noticed that the number of multiple offers on homes has decreased significantly when compared to the activity we were seeing in March and April. 

It’s tough to spot these micro trends simply by looking at the basic statistics published by the Toronto Real Estate Board each month so we dug a bit deeper to find some numbers that illustrate this trend a bit better.

The chart below shows the percent of houses in the City of Toronto that sold for more than their asking price in 2011 and 2012 including the first two weeks of June. We are interested in the number of homes selling for more than asking because it is a very good proxy for the number of houses getting multiple offers. In most cases purchasers would not offer a price above asking unless they are in a multiple offer situation.

Low-income Families, Students Being Hurt by Licensing Requirements

Bob Aaron in Legal

Compulsory licensing for small landlords is rapidly spreading throughout Ontario, having come into effect most recently in Waterloo on April 1 and North Bay on May 1. Other Ontario cities which have already implemented a licensing regime are Guelph, London, Mississauga and Oshawa.

The idea appears to be contagious, and many other cities are looking at the concept, including Hamilton and Kitchener.

Waterloo’s licensing regime is typical. Licensed rental properties in homes or townhouses can have no more than four bedrooms, but units in apartment buildings and condominiums are strangely exempt.

Landlords are required to pay application and annual fees of as much as $825 to rent bedrooms in houses and townhomes.

Monday Morning Interest Rate Update (June 11, 2012)

David Larock in Mortgages and Finance, Home Buying, Toronto Real Estate News

This week’s Update was going to focus on the latest employment report from Statistics Canada and how it brought an end to our March and April run of higher-than-expected job creation data. The 7,700 new jobs that were created in May were much more in line with our other economic indicators, like GDP growth, and while the report wasn’t bad, it effectively ended the debate about whether our surprisingly strong job numbers were the first green shoots of a broad-based economic upswing or a temporary anomaly caused by slower-than-expected job creation over the winter.     

And then Spain happened.

After repeatedly denying that Spain would require a bailout, Spanish Prime Minister Mariano Rajoy announced over the weekend that his country was requesting approximately 100 billion euros in emergency funding  to recapitalize its imperiled banking sector. (This will be done through a program called the FROB, which, when translated into English, stands for the Fund for Orderly Bank Restructuring. I can only assume that this name was chosen because the Fund for Disorderly Bank Restructuring was already in use…but I digress).

So what does this mean for the euro-zone crisis and, more importantly for my readers, Canadian mortgage rates?

First, this latest bailout unfolded in the same manner as each of its predecessors. The euro-zone’s leaders waited until what seemed like the last possible moment and then offered a weak solution. Although it might do just enough to keep speculators from pushing Spanish bond yields past the point-of-no-return in the near future, it does little to restore investor confidence over the long term. (The experts I read are predicting that the true cost of saving Spain will be in the trillions, not billions.)

This incrementalist approach has evolved because euro-zone leaders are constantly faced with the same dilemna, which is that the very emergency measures that are needed to save the region from collapse are by their nature perceived to run counter to the national self-interests of their respective electorates. It isn’t lost on these decision makers that just about every incumbent who has stood for re-election since the crisis began is no longer cashing a government paycheck. Although it’s hard to imagine that letting the euro zone collapse would be any better for a government’s re-election prospects, decisions about whether to support more bailouts look like choices between the devil and the deep blue sea.

Monday Morning Interest Rate Update (June 4, 2012)

David Larock in Mortgages and Finance, Home Buying, Toronto Real Estate News

The current debate about the strength of the global economic recovery is pretty much over, at least for now.  

In the opening months of 2012, beauty was in the eye of the beholder. Those with a bullish view pointed to some positive short-term momentum in specific economic data (like job growth) while those with a more bearish outlook focused instead on longer-term imbalances (like debt-to-GDP ratios) to justify their caution.

But last week much of the encouraging short-term economic data that the bulls had been relying on swung negative and this triggered an investor stampede into AAA-rated government bonds, driving the bond yields in a select few countries to their lowest levels since the start of the Great Recession.

Here is a summary of the factors that led to this capitulation: