For the fourth time in as many years, the Federal Government has announced action to restrict mortgage credit. The new measures include:

•The maximum amortization on a prime mortgage will be reduced from 30 to 25 years.
•Mortgage insurance will not be provided for properties valued over $1 million.
•Refinancing has been lowered from a maximum of 85% loan-to-value to a maximum of 80% loan-to-value.
•The maximum gross debt service (GDS) and total debt service (TDS) will be limited to a maximum of 39% and 44% respectively. Currently, GDS does not apply to qualified borrowers with credit scores over 680.

These measures will take effect July 9, 2012.

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To make households, the economy and the financial system less vulnerable to risk, Finance Minister Flaherty also asked OSFI to prepare guidelines for a safer housing finance system.

In March 2012, OSFI released draft guidelines for residential mortgage underwriting practices and procedures which will likely become part of new regulations for federally-regulated institutions.

On June 6, OSDI released an interim update on the guidelines. The guidelines now include a requirement that lenders develop internal policies governing their underwriting of residential mortgage loans.

Lenders will remain responsible for deciding what level of review o place on borrowers’ qualifications at the time of renewal, which may include:
• The borrowers’ employment status and income, even for borrowers renewing their mortgage, and also take into account if the borrowers are retired, self-employed, or receives commissions, bonuses, overtime and /or tips;
• The source of down payment; and
• The variable expenses including heating costs, home insurance and taxes.

Lenders will be required to periodically review (not necessarily at renewal) borrowers’ credit risk and repayment capacity.

For home equity lines of credit, new appraisal processes will be used. Home equity lines of credit will also be limited to 65 per cent of a property’s value.

Minister Flaherty has tightened mortgage rules three times in the past four years and is also expected to introduce new regulations in the next year to raise the minimum down payment from the current five per cent and to reduce the maximum amortization period to 25 years from the current 30 years. 

Article from Realtor Link, June 15, 2012

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Economic Outlook

Incoming data from the first quarter of 2012 shows that the BC economy is sustaining and even building on, the momentum it gained towards the end of 2011. Growth in consumer spending has be buoyed by an improving labour market and residential and non-residential investment continues to be supported by historically low interest rates.

While BC’s economic growth has been steady to start the year, uncertainty in the global economy continues to loom over 2012. A Eurozone recession and the significant risk of a Greek exit from the Euro have rattled financial markets. First quarter growth in BC exports to the United States and Japan softened as have sales to Asian markets outside of China. Indeed, China is the only major market in which BC exports grew year-over-year, and even that growth will slow if the Chinese economy falters as some analysts expect. On a positive note, economic growth in the United States is very likely to improve on last year’s anemic pace which should help to support BC exports.

While elevated household debt remains the principal domestic risk to the provincial economy historically low interest rates meant that BC households are more than able to meet their current debt obligations. As a result we do not view the debt being careered by consumers as a cause for alarm.

However, a high level of household debt does have medium-run implications for growth and financial vulnerability and cannot be ignored. An increasing debt burden magnifies the vulnerability of BC households to economic shocks such as loss of employment.

Moreover, as interest rates normalize the cost of servicing debt will consume a growing share of household disposable income. As a result, consumers may cut back on other expenditures thereby creating a drag on economic growth until their debt level becomes less onerous.  

Article from Realtor Link, June 15, 2012

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Open House on Saturday, June 16, 2012 2:00 pm - 4:00 pm
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The Bank of Canada kept its trend-setting Bank Rate at 1.25 per cent on June 5th, 2012. It was the 14th consecutive policy meeting in which borrowing costs have been left unchanged.

While the text accompanying the announcement left the door open to future rate hikes, the language used was considerably less hawkish than in the previous announcement in April as the Bank sounded a cautious tone over the recent deterioration of the situation in Europe.

The announcement begins, “The outlook for global economic growth has weakened in recent weeks. Some of the risks around the European crisis are materializing and risks remain skewed to the downside. This is leading to a sharp deterioration in global financial conditions.”

The Bank also noted that while the U.S. economy was continuing to expand, albeit modestly, emerging economies were slowing faster and a bit more broadly than expected. That more modest global momentum combined with heightened financial risk aversion has led to lower commodity prices, which is weighing on Canadian exports.

Canadian economic growth was slower than the Bank expected in the first quarter of the year, 1.9 per cent compared to a projected 2.5 per cent; however, underlying economic momentum remains in line with expectations.

That said, the composition of growth has become less balanced. Specifically, housing activity has been stronger than the Bank had been expecting, and despite external risks, business and household confidence has remained resilient amid very stimulative domestic financial conditions.

In contrast, the contribution to growth from government spending is expected to be quite modest going forward in line with recent federal and provincial budgets. Additionally, the recovery in net exports is likely to remain weak in light of the combination of reduced external demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar.

The Bank said the Canadian economy continues to operate with a small degree of excess capacity, and that even though headline CPI inflation was expected to fall below 2 per cent in the short term due to lower gasoline prices, the core rate inflation was expected to remain around the target 2 per cent mark.

The announcement ended by reiterating that, to the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, the possibility of a rate hike was not completely off the table, but that the timing and degree of any such action would depend heavily upon how current heightened downside risks play out in the months ahead.

As of June 5th 2012, the advertised five-year lending rate stood at 5.34 per cent. This is down 0.1 percentage points from 5.44 per cent on April 17th, when the Bank made its previous policy interest rate announcement.

The Bank will make its next scheduled rate announcement on July 17th, 2012

Artice from Canadian Real Estate Association, June 5th, 2012

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The number of properties listed for sale continued to increase in the Greater Vancouver housing market in May. The number of sales decreased year over year, but remained relatively constant compared to recent months.

The Real Estate Board of Greater Vancouver (REBGV) reports that residential property sales in Greater Vancouver reached 2,853 on the Multiple Listing Service® (MLS®) in May 2012. This represents a 15.5 per cent decline compared to the 3,377 sales recorded in May 2011.

May sales were the lowest total for the month in the region since 2001 and 21.1 per cent below the 10-year May sales average of 3,617. However, sales have been constant throughout the spring months, with 2,874 sales in March and 2,799 sales in April.

“Home sellers have outpaced buyers in recent months, however, there continues to be an overall balance between supply and demand in our marketplace,” Eugen Klein, REBGV president said.

New listings for detached, attached and apartment properties in Greater Vancouver totalled 6,927 in May 2012. This represents a 16.8 per cent increase compared to May 2011 when 5,931 homes were listed for sale and a 14.4 per cent increase compared to April 2012 when 6,056 homes were listed for sale on the region’s MLS®.

Last month’s new listing total was 15.3 per cent above the 10-year average for listings in Greater Vancouver for May.

At 17,835, the total number of homes listed for sale on the region’s MLS® increased 7.9 per cent in May compared to last month and increased 21 per cent from this time last year.

“Our sales-to-active-listing ratio sits at 16 per cent, which is indicative of balanced market conditions,” Klein said. “As a result of this stability, home prices at the regional level have seen little fluctuation over the last six month.”

The MLS® HPI benchmark price* for all residential properties in Greater Vancouver currently sits at $625,100, up 3.3 per cent compared to May 2011 and up 2.4 per cent over the last three months. The benchmark price for all residential properties in the Lower Mainland** is $558,300, which is a 3 per cent increase compared to May 2011 and a 2.3 per cent increase compared to three months ago.  

Sales of detached properties on the MLS® in May 2012 reached 1,180, a decline of 24.8 per cent from the 1,570 detached sales recorded in May 2011, and a 6.1 per cent decrease from the 1,256 units sold in May 2010. The benchmark price for detached properties increased 5.1 per cent from May 2011 to $967,500.

Sales of apartment properties reached 1,156 in May 2012, a decline of 5.9 per cent compared to the 1,228 sales in May 2011, and a decrease of 14.6 per cent compared to the 1,354 sales in May 2010.The benchmark price of an apartment property increased 1.7 per cent from May 2011 to $379,700.

Townhome property sales in May 2012 totalled 517, a decline of 10.7 per cent compared to the 579 sales in May 2011, and a 5.3 per cent decrease from the 546 townhome properties sold in May 2010. The benchmark price of a townhome unit increased 0.9 per cent between May 2011 and 2012 to $470,000.

Article from the Real Estate Board of Greater Vancouver, June 4, 2012, available online at

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Vancouver, like other Metro Vancouver municipalities, is scrambling to accommodate the 52% of residents who rent their home.

The situation is expected to worsen given that 40,000 newcomers or about 18,600 households arrive each year, and of these 6,500 households are renters. Since 2007, less than 1,000 rental units per year have been built in Metro Vancouver.

In 2009, to help address the problem, the City created the Short Term Incentives for Rental (STIR) program, which ran until December 2011. STIR provided incentives such as increased density and development cost levy waivers to builders of rental housing in both 100% residential and in mined-used buildings. But the program hand problems. While the 100% rental projects cost the city $4,900 per unit or a total of $1.8 million for 372 units, in contrast the 327 units in mixed strata/rental buildings cost $70,000 per unit, for a total of $23 million. The huge price difference has been attributed to building materials: the 100% rental units were in wood frame walk-ups, while the units in mixed use were in expensive-to-build concrete towers.

But the chronic lack of rental housing isn’t going away. So on May 15, 2012 Council approved a new Secured Rental Housing Policy. Like STIR, it will provide incentives for developers but this program will be for 100% rental buildings only. Mixed-used developments will not qualify.

The new Secured Rental Housing Policy is part of the City’s Housing and Homelessness Strategy which seeks to create 5,000 rental units in Vancouver by 2021.

Incentives under the new policy will likely be similar to those of the STIR program which included:
• Rental property assessment (on rental units only);
• Development cost levy waiver (on rental units only);
• Parking requirements reductions (on rental units only);
• Discretion on unit size
• Increased density; and
• Expedited permit processing.

Affordable rental housing is vital for small businesses throughout the Lower Mainland to attract and keep workers, according to John Winter, President of the BC Chamber of Commerce, who notes: “Without affordable places to live that are close to jobs and transit, local employers will have trouble competing for talented workers. “

The Canadian Rental housing Coalition, of which the Real Estate Board is a founding member, supports Vancouver’s policy and is bringing national attention to the need for rental housing to stimulate the economy and provide affordable housing alternatives.

Article from The Open House, June 1, 2012

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According to statistics released by The Canadian Real Estate Association (CREA), the MLS® Home Price Index, the leading measure of Canadian home prices, increased in April 2012.

• The Aggregate Composite MLS® Home Price Index in April 2012 was up 5.2% year-over-year.
• Toronto again posted the largest year-over-year increase (7.9%), with more modest gainsin Calgary (4.0%), Vancouver (3.7%), the Fraser Valley (2.7%), and Montreal (2.3%).
• Year-over-year price gains accelerated in April in Toronto and Calgary but slowed in Vancouver and the Fraser Valley and were little changed in Montreal.
• Single family home prices again posted the biggest gains (6.4%), with apartment unit and townhome sales making more modest headway (3.6% and 2.7% respectively).

The MLS®Home Price Index (MLS®HPI) rose 5.2 per cent year-over-year in April 2012. The increase was similar to those for the previous two months and among the smallest since last August. However, the moderation in overall price gains in recent months masks diverging trends among the major Canadian markets.

In April, the MLS® HPI again posted the largest year-over-year increase in Toronto (7.9%), followed by Calgary (4.0%), Vancouver (3.7%), the Fraser Valley (2.7%), and Montreal (2.3%).

Year-over-year price growth in Greater Vancouver slowed markedly in April and moderated in the nearby Fraser Valley. By contrast, Montreal — a market that tends towards more stable price growth — saw a small uptick in line with the aggregate index.

Toronto’s price index accelerated for the second straight month, consistent with its market balance where negotiations continue to favour the seller. Calgary is also now seeing prices begin to advance in earnest, supported by a strong economic outlook, recent gains in in-migration, and strong full-time job growth.

“Canadian home price gains are generally expected to moderate, but there are a few hot spots where prices are being fuelled by some very strong housing market fundamentals,” said Wayne Moen, CREA’s President. “Toronto has less than two months of supply compared to six months nationally, so it ranks among the tightest of Canadian housing markets. With prices moderating in some housing markets and bucking the trend in others, buyers and sellers should talk to their local REALTOR® to best understand how home price trends are evolving where they live. ”

Among the different housing types tracked by the index, single family homes again posted the biggest year-over-year gains in April (6.4%), led by two-storey single family homes (6.9%). The MLS® HPI for one-storey single family homes rose 5.6 per cent from April 2011, while townhouses and apartments saw gains of 3.6 per cent and 2.7 per cent, respectively.

“Just as there are some pretty clear differences emerging across markets right now, there have also been some interesting developments in price trends across housing types,” said Gregory Klump, CREA’s Chief Economist. “The one that really stood out in April was accelerating price growth for the townhouse segment right across the board. In Vancouver and the Fraser Valley, it was the only segment in which prices gains accelerated.”

Excerpt from MLS News Release, The Canadian Real Estate Association, May 25th, 2012

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