by Ephraim Vecina

Canadians continue to be anxious about inflation and rising costs of living, despite household debt easing slightly by the second quarter of the year.

According to fresh data from the Credit Counselling Society, the Canadian household debt ratio shrunk to 177.1% of disposable income during Q2 2019, slightly lower than the previous quarter’s reading of 177.6%.

The CCS also reported that on average, Canadians are carrying a debt load of $30,000 each – far above the $12,000 level just 20 years ago.

“Canadians continue to rely on their credit cards or lines of credit to supplement costs of living,” CCS president Scott Hannah said.

“If the economy continues to slow amidst trade tensions and other factors, Canadians need to prepare now for a potential recession in the future.”

Hannah also cited the latest survey of employed Canadians by the Canadian Payroll Association, which found that 1 in 3 consumers currently hold credit card debt, and 38% will need more than a year to pay off said debt.

Additionally, 1 out of 3 Canadians indicated that their debt loads have increased since last year, and that they are spending more than their net income. As much as 43% are forced to live paycheque to paycheque, while fully 83% confessed anxiety over growing daily living costs.

“We are not surprised by these latest statistics, as we continue to hear from Canadians, who are having difficulty managing their rising debt levels and how to effectively manage the increasing costs of living without relying on credit,” Hannah stated.

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by Ephraim Vecina

After three straight months of stagnant levels, the Canadian workforce saw the addition of 81,000 new jobs last month.

The increase far surpassed earlier predictions of roughly 20,000 new workers, and contributed to the massive 471,300 new jobs in the economy during the past year alone.

This was the largest 12-month gain since 2003, keeping the unemployment rate at just 5.7%, Bloomberg reported.

CIBC World Markets chief economist Avery Shenfeld said that this is evidence of Canada’s robustness against the influence of global trade turmoil – further building the case for the central bank hold its overnight rate yet again in its October meeting.

“If the Bank of Canada was on the fence about cutting rates in October, [these] jobs numbers might be one further push towards standing pat,” Shenfeld wrote in an investor note late last week.

These developments bode well for prospective home buyers’ purchasing power. Home sales activity in the nation’s largest markets has intensified recently, indicating that Canadians have already weathered the pressures imposed by the stress test.

Data from the Toronto Real Estate Board indicated that in the GTA, residential transactions had a 13% year-over-year increase in August. New listings also fell by 3% annually, while the average home price in the GTA grew by 3.6% to reach $792,611.

Meanwhile, residential sales in Vancouver enjoyed a notable 15.7% year-over-year growth, even as the benchmark home price dropped by 8.3% annually to $993,300. This was the lowest level since May 2017, according to the Real Estate Board of Greater Vancouver.

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By: Peter Evans

If a recession is headed our way, the canaries in the economic coal mine that are most likely to sing its arrival will be Canada’s big banks. That’s because Canada’s five biggest lenders — Royal Bank, TD, Bank of Montreal, Scotiabank and CIBC — have a hand in nearly every aspect of Canada’s economy, from loaning businesses money for expansion to funding the mortgages that finance much of the housing market.

Those same banks are in the midst of revealing their quarterly earnings this week, and the numbers should offer a good glimpse of where the economy is headed.

Profits up

The Royal Bank of Canada was first to report last week, showing profits rising to a record $3.3 billion in the third quarter. CIBC was next, with a quarterly profit of $1.4 billion in the three months up to the end of July.

Both figures are up only slightly from last year’s level, but in a world in which the financial media is warning of negative rates, inverted yields and huge stock market swings on a seemingly daily basis, rising profits are good to see at the banks. Because if the banks are making money, there’s a good chance many of their customers are doing well, too.

The Bank of Montreal and Scotiabank will report their earnings Tuesday morning. TD’s expected to show its hand on Thursday.

While the forecast for the two banks we’ve already heard from was generally sunny, that’s not to say there weren’t a few clouds on the horizon — potential storms that investors will be on the lookout for in the other banks’ outlooks.

Mortgages

Royal managed to grow their residential mortgage business by almost 6 per cent in the past year to $298 billion, an impressive feat considering how big a player they were in the market to begin with. As CBC News has reported, mortgage rates have been headed lower in recent months, a development that’s a double-edged sword for banks — because each mortgage individually is less profitable for them, but they are also able to sell more of them because they appear to be cheaper.

Policymakers have spent years worrying about Canadians’ debt loads, but Royal Bank’s performance suggests there’s room for more. Borrowers wouldn’t be taking on all that new debt if they weren’t feeling confident about their prospects, either. As TD Bank analyst Mario Mendonca put it, “We expect mortgage growth to make a healthy recovery this quarter, reflecting a reasonably strong spring selling season, particularly in Ontario.”

The mortgage picture at CIBC, meanwhile, wasn’t quite as rosy. Despite handing out $9 billion in new mortgages during the quarter, the total value of CIBC’s mortgages actually shrank by a little more than one per cent to $222 billion.

Worse still for the bank is where many of them are. “CIBC is the most-exposed to mortgage loans in Ontario and British Columbia,” Bloomberg analyst Paul Gulberg said.

While Canada’s housing market overall has shown signs of stabilizing, activity in Toronto and Vancouver is still causing worry, so it should be interesting to see what the other banks have to say about their mortgage businesses.

Other types of loans

Another possible dark cloud on an otherwise blue sky could be what the banks are saying about their loans to businesses. That’s because both banks reported higher credit loss provisions — money that banks set aside to write off bad loans. While it’s still a tiny slice of their overall business, if more businesses are having trouble paying back their bank loans, that’s a bad sign for the economy.

At Royal, credit losses came in at $425 million, a 27 per cent increase year over year. At CIBC, the figure stood at $291 million for the quarter, a 21 per cent increase year over year.

The worst part is those credit losses seem to be spreading beyond certain problematic parts of the economy.

“It used to be oil and gas but it looks like it has spread … to some other areas,” said James Shanahan, a senior equity research analyst with Edward Jones.

The oil and gas sector has been hit hard and has been a black mark on Canada’s economy for a while, but there’s some evidence that weakness is spreading to businesses in forestry, agriculture, and other industries, he said.

“It’s not too surprising given the tremendous growth, but this could be a problem for the banks,” Shanahan said.

But more cash for shareholders

Loans going bad are a bad sign for any business — never mind the broader economy — but the two banks did give a surefire indication that they are feeling confident about their prospects: they raised their dividend.

No major Canadian bank has missed a dividend payment in more than a century, but with a track record like that, banks are incredibly careful not to promise any more cash than they are confident they’ll be able to come up with.

Companies that have to snatch back a dividend payment tend to be punished heavily on the stock market, so the banks have been raising their payouts steadily, but cautiously, for decades.

Based on Royal and CIBC not increasing their dividends during the previous quarter, Mendonca was expecting both banks to hike this time around. And that’s exactly what they did — another three cents for Royal and four for CIBC.

He’s expecting a bump up at Scotiabank, too, but not for BMO since that bank already hiked last quarter.

Based on how much they are paying out, Shanahan says the banks have some capacity to keep the dividend hikes coming, but on the whole he thought the numbers at Royal and CIBC showed they are “in pretty good shape.”

And as for the rest, “I think results will continue to come in similarly,” he said.

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By: Peter Miller The Mortgage Reports Contributor

You might be delaying your plans to apply for a refinance.

And that could be a mistake.

The time it takes to refinance is about to shoot up. Way up. Homeowners are refinancing in droves, which is taking lenders by surprise.

In December 2012 it took 57 days to close a refinance, according to mortgage software firm Ellie Mae. That’s nearly two full months.

In June 2019, before rates really started dropping, it took just 38 days to close a refi.

Why the big difference? Late-2012 saw the lowest mortgage rates ever, sparking a refinance boom. And the market is ripe once again for lowest-ever rates.

And considering it’s way more expensive to lock for 60 days than 30, it’s a wise time to apply and lock in your refinance.

Why lenders were surprised

In today’s world of AI and big data, closing a mortgage loan is still a surprisingly manual process.

Humans — yes, real humans — still need to review every file and make a judgment call on every piece of paper in the file — even if the “paper” is stored as a PDF in the lender’s database.

That intense human review wouldn’t be a problem if you had unlimited staff. But — oops — lenders laid off staff en masse in 2018.

Lenders – like every business – want to control costs. If they expect to do less business they will reduce their workforce. Experts predicted that 2019 mortgage rates would top 5%.

Higher rates typically mean fewer originations so lenders began to cut back. Layoffs, mergers, and closures became routine. Lenders were set for a smaller future.

But then something strange happened. Instead of going up, 2019 mortgage rates went down. Way down. Many predictions were off by more than 2%.

Last week Freddie Mac reported that mortgage rates hit 3.55%. That’s not far from the 3.31% historic low set in 2012. When rates go down financing becomes more attractive. Black Knight estimated that with today’s rates 9.7 million borrowers are solid refinancing candidates.

For lenders, this turned out to be the worst of all worlds.

“Small and midsize U.S. mortgage firms,” said The Wall Street Journal in November, “are trimming staff, putting themselves up for sale and closing up shop at a clip not seen in years, a sign of the mounting pressure on the housing market as interest rates rise and a long economic expansion matures.”

Looks like lenders should have held out a few more months.

Fewer loan officers to help you

Industry changes can be seen with licensing statistics. The Conference of State Bank Supervisors reports there were less than 50,000 people who applied for mortgage loan officer licenses in the first quarter of 2018. A year later the number fell to 31,882.

In the first quarter of 2018 the Supervisors counted 107,386 licenses that were terminated. The first quarter of 2019 saw the number of terminations rose to 167,188.

In effect, fewer people are entering the mortgage loan business and fewer are staying. The army of loan officers waiting to help with your application is shrinking.

Lender finances getting squeezed

According to the Mortgage Bankers Association (MBA) the typical lending company originated 1,799 loans in the fourth quarter. That number fell to 1,571 loans in the first quarter, the latest available figure.

Lenders have a lot of fixed costs. When volume goes down the cost to originate each loan goes up. In the fourth quarter, the MBA reported that total mortgage production expenses — commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – reached $8,611 per loan.

In the first quarter of this year things got worse. With less volume, average costs per loan increased to $9,299. The end result is that we have a lot of demand to refinance and fewer professionals to help with the process.

Is the loan application process really automated? No, really?

Automation has led to notable increases in processing speed and paperwork reduction. At the same time, mortgage loan officers remain necessary to assure that automation does not unfairly deny a loan to one person or create excess risk by approving a loan incorrectly.

Even with automation, there’s an ongoing need for manual reviews. The FHA, as one example, now requires manual reviews for cash-out refinance borrowers with low credit scores and high debt-to-income ratios. Some lenders use both automation and manual underwriting to assure good outcomes and less risk for all loans.

Strategies to refinance before wait times increase

For millions of Americans the time to refinance is now. However, there are two concerns.

First, you can’t know if refinancing makes sense without checking the numbers and speaking with mortgage loan officers. You need to know the latest rates and fees to make a good decision.

Second, an increase in refinance applications and a decline in loan officers and mortgage staff can slow the process.

To win in the new world of refinancing you have to plan ahead. If you think rates are low and not likely to go much lower, then lock-in a rate.

No less important, make sure your lock-in is long enough to cover application delays. A 30-day lock-in won’t work in a market where the typical refinance takes 38 days.

And, the longer wait times get, the longer your lock needs to be. You might tack on 0.125% to your rate by locking your loan for 60 days rather than 30.

For more information check online and see how today’s rates might lower your monthly mortgage costs. Given lower rates you might be pleasantly surprised.

Start your refinance before the line gets too long

No one likes to wait in line, but that’s just what millions of homeowners are choosing to do.

Get ahead of the crowd. Start your refinance and start saving money each month sooner rather than later.

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by Neil Sharma

Toronto is experiencing one of the world’ s largest building booms, but it’s the city’s mixed-use developments that have become the world’s envy.

One such development is Union Park, a sprawling 4.3 million square foot, $3.5 billion office, residential and retail complex in the city’s core. Not only will it be one of the largest developments in Toronto’s history, it’s part of a growing intensification trend that maximizes every last available square foot. Toronto has over 50 occupied mixed-use developments with more on the way.

Matti Siemiatycki, associate professor at the University of Toronto’s Department of Geography and Planning, told Canada.com that developers had a light bulb moment in which they realized they could satisfy several crucial aspects of building.

“A cohort of developers has realized that projects are more profitable, that resident lifestyle is improved, and that communities are more vibrant when they embrace a broad, diverse and creative mix of land uses,” he said.

Mixed-use developments can often take on the larger form of a master-planned community—a type of development that’s proliferated the GTA housing market for much of the past decade. Joseph Felman, Camrost’s director of development, says the key to a good master-planned community is integrating into a new community and then ameliorating it.

That often comes through Section 37, a municipal planning stipulation that requires developers to make a community donation, usually in the form of a park or community centre.

Master-planned communities often emphasize healthier living, which, in tandem with intensification principles, often means pedestrian-friendly amenities.

“We’ve buried our parking below grade so we’re not a four-storey parking deck with condos above it,” Felman told Canada.com. “This has really opened up the pedestrian realm to ensure we have a walkable site rather than a walled city block. Our central piazza gives us seven frontages, and we intend to turn them all into vibrant retail zones with the same kind of stylish dining as in downtown Toronto.”

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