by Isabelle Khoo

It doesn’t look like the housing bubble will pop anytime soon. Despite high prices, housing demand in Canada continues to climb and sales continue to soar.

According to Toronto and Vancouver real estate board data, home sales rose by 24 per cent year over year in July in both cities. The increase was fuelled by low interest rates and high demand.

The Bank of Canada has held the interest rate steady at 1.75 per cent for six-straight announcements, and economists believe it will remain unchanged for at least another year, the Financial Post reports.

Mortgage rates have also reached their lowest levels since July 2017, now sitting at 2.39 per cent, according to Ratehub. These low rates have attracted more Canadians to enter the market, but have also created more demand and competition, which is driving up prices.

The growth of the population and job markets in Toronto and Vancouver have also increased housing demand. Toronto, in particular, has seen its growing population outpace all other cities in Canada and the U.S.

So how high are the prices in Canada’s biggest markets? The average in Vancouver is roughly $1.44 million; in Toronto, it’s $873,000; and in Montreal, it’s $375,000.

These prices have climbed drastically in the past 19 years, far outpacing prices in the U.S., Better Dwelling previously reported. In nearly 20 years, prices in Vancouver, Toronto, and Montreal have jumped by 316 per cent, 240 per cent, and 189 per cent, respectively.

As a result, less than 10 per cent of Toronto and Vancouver’s wealthiest residents can afford to buy a home in their respective cities.

So when will the prices stop rising? According to Doug Porter, chief economist at Bank of Montreal, there’s no real answer.

“When you’re looking at a market that becomes driven by wealth, and wealth from outside the city limits, then there isn’t necessarily a limit to house prices,” he told HuffPost Canada.

Unfortunately, millennials face the harshest consequences of this. High prices means it will be harder for them to qualify for a mortgage and enter the market. Plus, the fact that more seniors are delaying downsizing means millennials will be left with limited options for affordable homes.

It was previously predicted that Toronto’s housing bubble could burst, but with the rise of home sales, only time will tell which way the market will go.

By: Pete Evans 

The government on Monday released details of a program announced during the last federal budget, an initiative that could see Canada’s housing agency contribute up to 10 per cent of the price of a buyer’s first home if certain conditions are met.

Under the fine print for the First Time Home Buyer Incentive program, which was announced in March and will officially launch in September, a first-time homebuyer who earns less than $120,000 can qualify. The Canada Mortgage and Housing Corporation would kick in up to 10 per cent of the purchase price of the home, providing the borrower comes up with the minimum amount for an insured mortgage, which is now at five per cent.

There’s also a requirement that the total value of the mortgage plus the CMHC’s portion don’t eclipse $480,000. A government official says that effectively means the program is only available for properties worth a maximum of about $565,000, regardless of whether or not they have met the other requirements.

If that bar is met, the CMHC may kick in an additional five per cent of the purchase price of a resale home. For a newly built home, the CMHC may contribute up to 10 per cent.

The stakes from the CMHC would be interest free, meaning no ongoing cost to pay down, like a mortgage does.

But the government says in exchange for its stake, the CMHC would get to participate “in the upside and downside of the change in the property value” — which means they would be entitled to any corresponding increase in the value of a home when the buyer eventually sells. On the flip side, the government would also be on the hook for any share of the loss if the property depreciates.

On a home costing $500,000, if the borrower puts up $25,000 and the CMHC puts up the same amount, the CMHC would then own five per cent of that home. So if, down the line, the house appreciates to $600,000 and the borrower wants to sell, they would have to give the CMHC five per cent of the sale price — $30,000 in this example — not the $25,000 the CMHC put down in the first place.

While a bill would be paid down the line, the savings over the years could add up. In the example above, the program would save a would-be borrower $286 a month in mortgage costs over the life of the loan, $3,430 a year.

“This will mean more money in the pockets of Canadians and will help up to an estimated 100,000 families across Canada,” said Jean-Yves Duclos, the Liberal MP and cabinet member in charge of the CMHC.

Financial adviser Rajiv Bissessur says the program will likely help some people, but ultimately, it amounts to just another form of debt for overleveraged borrowers.

“It’s an interest-free loan, but it’s still a loan they will have to pay back,” he said.

He also said the relatively low cap on prices and loan amounts won’t do much to help people who need it most, to buy in some of the more expensive markets. “We are not really fixing the problem.”

The program must be paid back within 25 years — or if the buyer sells before that — but there’s no financial penalty for buying the CMHC out of its stake, at whatever the fair value of the home is at the time.

Applications will be accepted as of Sept. 2 for home sales that will close no earlier than Nov. 1.

Funding for other programs too

In addition to offering these programs itself, the government has earmarked $100 million a year to help fund other organizations that already offer similar programs.

That’s a group that could include Toronto-based Options For Homes, which has worked with 3,000 homeowners over the last quarter century on a similar model — putting up money to help them become home purchasers, in exchange for a stake in the property down the line.

“[This] will go a long way to help to improve access to home ownership for middle-income earners and make progress in tackling affordability issues,” CEO Heather Tremain said.

“We’ve been using the shared equity mortgage model for more than 25 years and have seen first-hand the positive impact it can have on working Canadians looking to achieve the dream of home ownership.”

But some are critical of the government’s program because they say it does little to help buyers in expensive cities that need the most help.

Mortgage Professionals Canada, which represents brokers across Canada, noted the $560,000 cap on the program makes it essentially useless in Toronto and Vancouver, where even entry-level homes cost far more.

James Laird, president of mortgage brokerage Canwise Financial, said the government program could actually reduce a would-be buyer’s purchasing power in some cases. Eligibility is capped, where the amount being borrowed must be no more than four times the person’s annual income, but standard mortgage stress test rules allow for borrowers to get between 4.5 and 4.7 times their income.

“Those who would be attracted to the program would be Canadians who are trying to purchase at their maximum qualification,” Laird said. “However, because the program diminishes how much you can qualify for, it doesn’t serve the needs of the group it is targeted at. Canadians can get a larger loan by not participating in the program.”

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by Ephraim Vecina

For a growing number of Canadians, shared financial or property goals are now more important than looks when it comes to evaluating potential romantic partners.

The HSBC-sponsored Beyond the Bricks annual survey, which polled 1,077 Canadians regarding their attitudes toward home ownership, found that fully 61% of Canadian millennials hold serious anxieties regarding housing.

A significant proportion of this cohort value the financial (39%) or home purchase (33%) mindsets of the people they choose to date.

This comes with its share of misfortune and heartbreak, as Canadian millennials were 16% more likely to stay in unhealthy relationships due to property, compared to the overall Canadian average of 6%.

Among Canadian millennials who have found their ideal partner, 62.8% said that their last house move was due to finances. These considerations included getting more value for money (25.5%) and relocating to a market with a lower cost of living (23.4%).

“The anxiety millennials (and others) feel is justified. Close to 70% of Canadians own their home but less than 30% do so without a mortgage,” HSBC Bank Canada senior vice president Barry Gollom said.

Compounding the issue is that the demographic continues to labour under high prices and static incomes.

According to the non-profit housing advocacy organization Generation Squeeze, Canadian millennials take an average of 13 years to save for 20% on a median-priced home, while their parents needed just around five years to do so in 1976.

“It’s crushing those who walk in their footsteps,” lead author and University of British Columbia policy professor Paul Kershaw said earlier this year.

Kershaw added that true housing affordability can be reached only if average earnings double (up to $93,400 annually), or if average home prices declined by half (a reduction of approximately $223,000).

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by Duffie Osental

With the federal election looming large, the Ontario Real Estate Association is lobbying all four major parties to make homeownership cornerstones of their respective campaigns.

The real estate association has been particularly vocal about the plight of first-time homebuyers, many, if not most, of whom are shuttered out of the housing market for reasons ranging from general affordability to B-20. Whether or not the parties propound strategies of substance remains to be seen, though.

“There has been progress in the last few months, so we feel like our message is being heard,” said Tim Hudak, OREA’s CEO. “The Liberals did bring in the First Time Home Buyer Incentive; the Conservative Party has talked about eliminating the stress test for careful savers renewing their mortgages so they can choose which lender they renew with; the NDP has said they’d bring back 30-year amortizations for insured mortgages. So those three parties put something on the table, but they all fall short of comprehensive plans for that struggling millennial—she just got a job, maybe even a promotion, but she can’t find a home.”

OREA has some suggestions for a (partial) panacea to a housing crisis that Canadians scarcely go a day without reading in the news. Restoring an optional 30-year amortization on insured mortgages, in addition to amending B-20 so that it doesn’t cast a wide net and affect all borrowers, as well as permitting stress test-free switches, are the association’s recommendations to federal political parties.

“Quite frankly, government policies have created a two-tier system where, if you’re rich and get a loan from the bank of mom and dad, you don’t have to worry about these things,” said Hudak. “But the struggling middle-class, which works hard and saves its money and would normally access a mortgage, has been shut out.”

The message Hudak carries isn’t all doom and gloom. He credits Ontario’s provincial government for taking some initiative on key files, notably Bill 108, the More Homes, More Choice Act.

“It includes working with municipalities to eliminate 1970s-era zoning laws,” Hudak said of increasing supply, which he added is the preponderant reason for unaffordability.

“It allows greater density around major transportation hubs, like subways and GO stations and building above them. My centre point is even if there are more homes on the market, these unfair, harsh mortgage restrictions will disqualify far too many people from even putting an offer in.”

While it didn’t happen this week, the likelihood that the Bank of Canada slashes interest rates is growing, according to observers.

“If we were only looking at domestic factors, we might think that the Bank would soon start to consider further rate hikes,” said Stephen Brown, an economist with Capital Economics. “Economic growth is on track to outperform the Bank’s forecasts in the second quarter and core inflation has risen in recent months. But outside of Canada, trade tensions have grown, there are signs that U.S. GDP growth is slowing, and the Fed has signalled that it will soon cut rates. All this means the Bank is highly unlikely to start thinking about rate hikes again. We suspect the next move will be a cut.”

Indeed, the Federal Reserve’s next move—few believe an interest rate cut isn’t on its way—will determine the Bank of Canada’s. However, Jimmy Hansra, owner of Centum FairTrust Financial Group Inc., doubts the rate will move before the fall federal election.

“A rate decrease in Canada all depends on what happens in the U.S.,” he said. “We’re also in an election year and rates rarely move up or down before elections, but at the end of the day, we’re also going to do what the U.S. does. The Fed is talking about decreasing the interest rate a couple of times, and if they do that the Bank of Canada will be forced to do the same thing, otherwise our dollar will be too high.

“It’s not that the Bank of Canada wants to decrease rates, but, moving forward, that’s what’s going to happen.”

While Canada created more jobs through the first four months of this year than all of 2018 combined, Hansra noted that the statistic is superficial and amounts to little more than smoke and mirrors.

“The Bank of Canada is fooling itself if it thinks the economy is as strong as it thinks it is,” he said. “Nothing has been specified about the jobs created; some of them were part-time jobs, for example. In our business, we facilitate money lending and we see what the job market is like—people are struggling out there. People can barely afford to make their mortgage payments on time, so I don’t believe in job numbers being an accurate consensus of where the market is or isn’t.”

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