This week’s top stories include how there have been more changes added to the new mortgage regulations taking effect on April 19th, how home prices continue to increase even though home sales have slowed, how the wholesale sales sector showed significant gains and posted the largest rise in 3 years, how the U.S Federal Reserve decided to keep its benchmark interest rate where it is, how Canadian Prime Minister Stephen Harper urges the G20 to keep the stimulus money flowing but look for an exit strategy and how Toronto’s hot market continue’s to keep its glow.
Changes to mortgages for self employed
Canada Mortgage and Housing Corporation (CMHC) have paved the way for new regulations to take effect next month in regards to mortgages and mortgage insurance. Originally there was speculation that only refinances would be effected but as time has passed and the new regulations are brought to the forefront, we have realized that there will be substantial changes in the way that mortgages are obtained.
The new regulations that take effect on April 19th have created many changes to the ways that mortgages are provided. You will now only be able to take out up to 90% of the equity in your home when trying to refinance your mortgage and if you are self employed, you can only take out up to 85% of the equity in your home. Self employed consumers will now also need a minimum of 10% down in order to purchase a home. Self employed borrowers can no longer use the stated income program if they have been in business for more than three years.
When qualifying for a mortgage, you must qualify at the 5 year Bank of Canada (BoC) benchmark rate, which is usually 1.5% above most of our available 5 year fixed rate terms. This will apply even if you are taking a shorter term, such as a 1 year or a 2 year term, or even if you are taking a variable rate mortgage. Investors will also be effected and will now require a minimum down payment of 20% in order to purchase a property that is not their primary residence.
Home prices increase as sales drop
Home prices across Canada have kept increasing even though existing home sales were lower by 1.5% in the month of February from the previous month. This is the latest news from a report released this week from the Canadian Real Estate Association (CREA).
Nationally sales of homes were seasonally adjusted to 42 799 and were down across Canada when compared to January of this year. Sales were down over 13% in British Columbia which pulled the national average down. This may be in part to the Olympics which put B.C at a standstill for most of February.
Actual sales year over year did show an increase of 44% but is not an accurate reading as last year February we were still in an economic downturn.
Millan Mulraine, TD Securities economics strategist commented by saying, “Overall, after a fairly strong run up in activity in 2009, it appears that the moderation in Canadian housing market activity extended into a second straight month in February.”
Ontario saw an increase in sales of 3.3% with the average price of a home in Canada rising to $335 655, which is an increase of 18.2% from a year ago. Strong resale demand is eating up inventory levels but as of recently we also have more supply in the market. Further supply increases will slow down the housing markets as the year progresses.
Strength in wholesale
Statistics Canada reported this week that wholesale sales were up 3% during the month of January. The increase took wholesales sales to $44.4 billion, which is the strongest increase seen in the last three years. All sectors showed gains with four specific sectors accounting for 80% of the growth seen. The wholesale sector was lead by automotive products, building materials, machinery and electronic equipment and other products.
The automotive products sector saw sales grow by 4.8% to $7.8 billion in the month of January, which was the fourth straight increase in four months. Sales of wholesale building materials rose to $6 billion in the month of January with all three trade groups in the sector posting gains. The increased sales in the building materials sector were in line with the recent 5.8% increase seen in housing starts.
Higher sales in the machinery and equipment group led the machinery and electronic equipment sector to post a 2.6% increase as sales in the “other products” sector also increased by 4.1% due to a large increase in sales of agricultural chemicals.
All provinces in Canada posted higher wholesale sales numbers in the month of January except for Nova Scotia. Saskatchewan was the board leader with a large increase in wholesale sales of 18.4%. Wholesale trade inventories were down 1.1% in January to $52.8 billion, which was the lowest level seen since December of 2006. This was the 11th straight monthly decline in wholesale trade inventories.
U.S interest rates stay put
The North American stock markets had a great day on Wednesday of this week as the U.S Federal Reserve decided to leave interest rates unchanged for an extended period. This gave a positive start to the trading day on Wednesday and also caused the Canadian dollar to rise 0.17 of a cent to 98.79 cents U.S.
The Toronto market also found a lift from higher commodity prices. Oil prices were also up once a U.S report had shown that crude oil inventories grew less than previously expected last week. The stock markets did advance on Tuesday after the U.S Federal Reserve made the announcement that the key lending rate would stay unchanged as the economy showed further signs of improvement.
The Feds also drew a picture of a more optimistic assessment of the U.S economy while it noted that the labour market was stabilizing and that business spending was significantly on the rise. The current consensus is that the U.S Federal Reserve will raise its benchmark lending rate from the current range of zero to 0.25% sometime around the third quarter of this year.
Japan raised the bar for the overseas market after keeping its key interest rate at 0.1% and has expanded the money available through its short term lending program. How do you feel about the Federal Reserve’s decision? Please comment below.
Keep the stimulus
Yesterday was the meeting of the Group of 20 leading nations (G20). During this meeting, Canadian Prime Minister Stephen Harper pressed the Group of 20 to keep their stimulus funds flowing stating that the recovery is still not fully assured as of yet. Stephen Harper, who will be the host of the G20 summit this year in June, stated that the stimulus money must keep flowing but must be balanced with a need for an exit strategy. Canada, along with other countries around the world, is slowly winding down stimulus packages and stimulus projects over the next few years. Do you feel that the stimulus did its part to help our economic recovery? Please comment below.
Hot market continues
The Toronto Real Estate Board (TREB) released new figures on Wednesday of this week that 4 353 homes have traded hands during the first two weeks of March alone. This figure is up 70% from the figures seen the same time last year during our recession.
Royal Bank of Canada senior economist Robert Hogue commented by saying, “Very strong demand continues to dominate, lifting sales of existing homes to all time highs, yet keen buyer interest has largely failed to attract more sellers, resulting in a dearth of homes available for sale.”
Recent sales were strong enough to surpass the mid month peak, which was set in March of 2006 by 16%. The average price of a home for the mid month transactions were up 20% over last year and reached $440 153. New listings were also up from the same time last year with an increase of 34% more listings this year.
TREB’s senior manager of market analysis stated that we should watch for double digit price increases to come to a stop later this year as new listings rebound from the low levels seen in 2009. Increased listings will offer buyers more choice and result in less upward pressure on home prices.
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