Mortgage Matters

Gemma Riley-Laurin and Kevin Laurin (The Laurin Team), is an Ottawa based husband and wife mortgage team with the Dominion Lending Centres Family Mortgage Group, servicing the needs of residential mortgages and commercial/business leasing for the Ottawa Region.

With more than 25 years of combined experience in the financial industry, The Laurin Team is able to offer a mortgage solution or a business leasing that suits your needs and is the best financial option available for your home or business expansion in Canada's Capital area.

Financing is a critical personal and business decision

The Laurin Team offers professional and personal services for residential mortgages and commercial leasing with the aim of taking the complexities and hassles out of the financing process and simplifying your life.

With access to numerous lending institutions in the Ottawa Region and nationwide, including big banks, credit unions and trust companies, The Laurin Team is familiar with a vast array of available mortgage products ranging from first-time homebuyer programs to financing for the self-employed to new Canadian immigrants to financing for those with bruised credit.

The Laurin Team ensures all clients having the access and ability in gaining the knowledge and information to make an informed lending decision.

The LaurinTeam is team of trusted professionals in the Ottawa Region and member of the Canadian Association of Accredited Mortgage Professionals (CAAMP).

To reach Gemma 

900- 275 Slater Street
K1P 5H9 Ottawa, Ontario

(613) 845-0786

https://www.thelaurinteam.com

About Dominion Lending Centres Family Mortgage Group

Dominion Lending Centres Family Mortgage Group is a mortgage brokerage and leasing company associated with Dominion Lending Centres servicing the Ottawa Region.  Dominion Lending Centres is a National mortgage company that works with 90 banks, credit unions and trust companies providing residential and commerical mortgages and business leasing service

Articles

October 24, 2018

Poloz Rate Hike had a Hawkish Tone

As was universally expected, the Bank of Canada’s Governing Council hiked overnight rates this morning by 25 basis points taking the benchmark yield to 1-3/4%. This marked the fifth rate increase since the current tightening phase began in July 2017 (see chart below). The central bank stated it would return the overnight rate to a neutral stance, dropping the word ‘gradually’ that was used to describe the upward progression in yields since this process began. Market watchers will certainly note this omission. For the first time in years, the Bank has acknowledged it expects to remove monetary stimulus from the economy entirely.

So what is the neutral overnight rate? According to today’s Monetary Policy Report (MPR), “the neutral nominal policy rate is defined as the real rate consistent with output sustainably at its potential level and inflation equal to target, on an ongoing basis, plus 2% for the inflation target. It is a medium- to long-term equilibrium concept.” For Canada, the neutral rate is estimated to be between 2.5% and 3.5%, which implies that at a minimum, three more 25 basis point rate hikes are likely over the next year or so.

The Bank of Canada emphasized that the global economic outlook remains solid and that the U.S. economy is particularly robust, but is expected to moderate as U.S.-China trade tensions weigh on growth and commodity prices. The new U.S.-Mexico-Canada Agreement (USMCA) eliminated a good deal of uncertainty for Canadian exports, which will reignite business confidence and investment. Business investment and exports have been of concern in recent quarters, and the Bank is now looking towards a resurgence in these sectors, augmented by the recently-approved liquid natural gas project in British Columbia.

A continuing concern, however, is the decline in Canadian oil prices. Western Canada Select (WCS), a local blend that represents about half of Canada’s crude oil exports, has declined about 60% since July as global oil prices have risen (see chart below). WCS plunged below US$20 a barrel last week posting the biggest discount to West Texas Intermediate (WTI) on record in Bloomberg data back to 2008. WCS generally tracks heavy oil from Canada, which typically trades at a discount to WTI because of quality issues as well as the cost of transport from Alberta to the refineries in the U.S.

Canadian pipelines are already filled to the brim. The inability of the Canadian oil industry to build a major pipeline from Alberta to either the U.S. or the Pacific Ocean is increasingly dragging down domestic oil prices. Oil-by-rail shipments to the U.S. are at an all-time high, but this is an expensive and potentially unsafe option and precludes Canadian oil exports to China and Japan.

An even broader concern is the impact of higher interest rates on debt-laden consumers. The Bank is well aware of the risks, as the MPR cited that “consumption is projected to grow at a healthy pace, although the pace of spending gradually slows in response to rising interest rates… Higher mortgage rates and the changes to mortgage guidelines are affecting the dynamics of housing activity. Housing resales responded quickly to the new mortgage guidelines, and the level of resale activity is expected to continue on a lower trajectory than before the changes. New home construction is shifting toward smaller units, although stronger population growth is estimated to raise fundamental demand for housing.”

Household credit growth has slowed, and the share of new mortgages with high loan-to-income ratios has fallen. The ratio of household debt to income has leveled off and is expected to edge downward..

 

Where are Canadian Mortgage Rates Going in 2018?

2017 was a year of change for the Canadian Mortgage Market. With the announcement of the B-20 guideline changes requiring all insured or uninsured mortgages to undergo stress testing. In addition, the removal of mortgage bundling and the continued rate rises from the Bank of Canada have led to significant changes in mortgage rates.

This raises the question: what does 2018 hold? While we cannot be 100% certain, based on predictions and summarizing stats from various corporations, we are able to put together a strong prediction of what 2018 will hold.

The Real Estate Market

As a whole, the Canadian real estate market is expected to see a 5.3% drop in national sales due in large part to the new OSFI guidelines (CREA). With this, there is an expectation of minimal growth for home prices at just 1.9% vs. the 8.5% gain seen in 2017. This is due again to the heightened stress testing procedures.

In addition, the sales of condos and townhomes are expected to increase with new developments of multifamily complexes reaching an all-time high, and the demand for smaller, more affordable houses increasing.

So, what does that mean for home prices? CMHC predicts that the average home price is to increase from a range of $493,900-$511,300 in 2017 to a range of $499,400-$524,500 by 2019.

Essentially, the market is going through a period of increased demand for condos and townhomes, leading to potential price increases. In relation to the detached home market, there will be slight price increases, but nothing compared to the growth that was seen in 2016-2017. There is an ongoing trend for homebuyers based in Vancouver and the Fraser Valley to contentedly sit by the sidelines as they save up for a larger down payment before purchasing-further increasing condo ownership and driving demand for rental properties as well.

The Economy

The Canadian Economy has been growing and surging forward through most of 2017. In the four quarters from the second half of 2016 to the first half of 2017, the Canadian Economy grew on average each quarter by 3.6%. Further, despite a slight slowdown in the second half of 2017, there was a rise in employment Canada wide, posting the annual real GDP growth over 3% in 2017. It was a substantial year for the Canadian economy in 2017 and this growth was directly seen in the real estate and housing market.

As many are aware, to stabilize the economy and ensure balance remains, the Bank of Canada began raising interest rates in 2017 and has plans to continue to do so in 2018. This rise in interest rates serves to steadily and slowly stunt the growth of the economy in Canada. Coupled with the ongoing trade disputes, the Canadian economy is forecasted to slow overall, but will still post an above-trend 2.2% of growth in 2018.

The Mortgage Market

So, what does all of the above mean for the mortgage industry and its rates? Well, with the predicted increase in rates from the Bank of Canada it is safe to say that the mortgage rates will follow.

CMHC summarized that the expected interest rate increase over the near-term horizon will bump the posted 5-year mortgage rate to lie within 4.9% and 5.7% in 2018. For 2019 that number increases to 5.2%-6.2% range*

In layman’s terms, the rates are likely to continue to rise alongside the Bank of Canada’s increases. It is important to keep in mind that with planning and budgeting these rates can easily be taken on by the average consumer. A key thing to keep in mind is that a 0.25% rate increase works out to only $13.00/100k increase in your payment. Another fact is that every lender is different in how they will calculate this change. Your mortgage product is unique and may be affected differently than another.

Since the new changes have rolled out there has been a slight decline in consumer demand. As the changes continue to take effect and the potential for more rate increases continues, it becomes more apparent we will continue to see a shift in the mortgage and real estate market.

However, by choosing to work with a Dominion Lending Centres mortgage broker you are guaranteed to work with someone who has an in-depth understanding of both the changes and the market. They will work alongside you to find the best possible solution to get you the sharpest rate.

Geoff Lee

Dominion Lending Centres – Accredited Mortgage Professional
Geoff is part of DLC GLM Mortgage Group based in Vancouver, BC.

 

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