This weeks top stories include how building permits were up in the month of March, how tax payers are the real victims of the condo boom, how the new changes to Canada Mortgage & Housing Corporation will benefit alternative lenders rather than the major banks, how the pace of construction rose in the month of April, how Canada Mortgage & Housing Corporation is shrugging off the expected housing downturn and I close out with my personal thoughts on the Canadian mortgage market.
The pace of construction had an uptick in the month of March as the value of building permits issued went up by 4.7% to $6.8 billion. These are the latest figures released by Statistics Canada on Monday of this week and follows an increase in the month of February of 7.6%.
The value of non residential building permits were also up 13.9% to $2.9 billion in the month of March after witnessing a large increase of 37.7% the previous month. March is noted to have the highest level on record since June of 2010. The value of residential permits were down 1.3% to $3.9 billion in the month of March and was noted to be the third consecutive monthly decrease on record.
There are three times more condo high rises currently being built in Toronto than there are in New York city. Toronto also has seven times more condo high rises being built than in Chicago. Many are saying that this is due to foreign investments as overseas money is causing prices to rise and making housing unaffordable to Canadian residents. The key risk is still being placed on government insured mortgages, which falls on the Canadian taxpayers.
Investors in the industry are noted to have said, “I have come across something that I find astonishing, and which amounts to systemic tax fraud by investors, mostly foreign, on a massive scale.” He stated that foreigners are buying condo’s with a 5% deposit today and are provided the right to assign the units in the future. If they intend to assign the unit before completion, it makes the buyers not buyers at all but rather speculators. Buying today at $300,000 and assigning the unit at $400,000 down the road allows for the investor to make a quick $100,000 profit, which has lead many into the market. But these people are all speculators, buying and selling the property over and over again and causing prices to rise. This is where the bubble begins.
Not only are the foreign investors making the $100,000 but they are sheltering themselves against paying taxes on their gains. This is why Ottawa is pushing to prevent foreign investors from purchasing property in Canada. Many are saying that Canada lost at least $230 million last year alone by foreign speculators not claiming their gains. It seems that this is exactly what happened in Australia, which lead to Australia saying that foreigners could no longer buy homes in their country. What do you think of this mess? Please comment below.
With new regulations coming that govern Canada Mortgage & Housing Corporation (CMHC), it has mortgage companies competing against the major banks for more market share. The changes will include new regulation of CMHC by the Office of the Superintendent of Financial Institutions (OSFI) as well as prohibiting the use of covered bonds using CMHC insured mortgages.
Stephen Boland, analyst at GMP Securities commented, “We believe that the increased lending restrictions on the use of the CMHC will provide the alternative mortgage lenders with additional product which will help them continue to grow their loan books.” Mr. Boland also stated that increased restrictions on lending will include new guidelines for home equity lines of credit (HELOC’s). The big banks are now exiting the mortgage broker and non-prime mortgage market. The new landscape will favour Home Capital Group Inc, Equitable Group Inc. and Canadian Western Bank as their guidelines are made by them.
The new guidelines will make it difficult for borrowers to qualify for mortgage lending at a branch level unless they are rated triple A. The alternative mortgage business will make it’s way to one of the three companies, who will qualify clients under their own standards as they use their own money and no mortgage insurance through CMHC. The times are changing fast in the housing and mortgage market. What do you think of the latest changes? Please comment below.
The pace of housing starts gained strength in the month of April as an increase in construction on apartments and condos lead the way. This is the latest from Canada Mortgage & Housing Corporation (CMHC) who stated that there were over 21,000 actual starts in the month of April. That is equal to 244,900 starts on a seasonally adjusted annual basis. That is also up fro the rate of 214,800 units in the month of March.
The adjusted number accounts for seasonal variations and takes the annual number as if the April pace continued for a period of 12 months. The seasonally adjusted annual rate of urban starts rose by 19% to 226,200 units in the month of April. At the same time, urban single starts rose by 0.6% to 67,700 units. Multiple urban starts were also up by 27.4% to 158,500 units. It seems like the pace of construction is expanding again. What do you think? Please comment below.
The Canada Mortgage & Housing Corporation (CMHC) issued an annual report this week on Tuesday defending their business practices through the report. The report outlined that even though finance minister Jim Flaherty feels that the housing market in Canada is overheated, there are no signs of a market bubble thus far.
This is great news for the newbies in the condo market that purchased with as little as 5% down but does it stand true? The report also outlined that the overnight lending rate from the Bank of Canada (BoC), which is linked directly to interest rates, is likely to stay at 1.0% for the remainder of 2012. This statement lead the BoC to state that this is not the case and CMHC then issued a clarification stating that they were taking views of market forecasters and that the statement wasn’t directly from the BoC.
At the end of April, the federal government announced that CMHC will be under tougher scrutiny and guidelines as a new regulator steps in for oversight of the industry. The torch has been passed from the Human Resources and Skills Department over to the Office of the Superintendent of Financial Institutions (OSFI). Flaherty commented on the change by saying, “I’ve been concerned about the CMHC for some time in the sense that it’s become an important financial institution in Canada, and it was not subject to the same supervision by the Office of the Superintendent of Financial Institutions.”
Low mortgage interest rates has caused a housing boom in Canada like never before. They have also raised concerns about the high level of household debt to income as many take advantage of cheap money. A push for higher interest rates, to cut off the overindulging, has been made but it could put many consumers underwater, which will lead to a drop in the overall prices of housing as many try to sell at the same time. What do you think? Please comment below.
With so much condo supply coming on to the market in the Greater Toronto Area (GTA), rising interest rates, high property taxes and poor construction, we can only guess what kind of real estate meltdown is waiting to happened. The condo market is the center of this controversy as runaway speculation will be the mitigating factor of it’s demise. There is only a couple of ways that purchasing a condo can play out.
(1) You spend 5% on a downpayment and make $100,000 by flipping the condo unit on closing in another 5 years. (2) The market goes bust and the condo is never built, which means that you get your deposit back after paying a ton of unrecoverable fee’s and interest. (3) The condo gets developed but the market weakens and the condo is now worth less than you paid for it, giving you an instant loss on closing. (4) The condo gets developed. It retains its value and everyone is happy.
You must remember, when looking at my above opinion of what can happened, building starts numbers came out this week and they were interesting to say the least. We currently have more construction today than at any time in the last six years, with the bulk of the constructions being condo’s in the GTA. The numbers show that there are now 85,000 units being built, marketed or pre-sold. Currently 15,000 condo that are already built sit empty in Toronto as unsold inventory. That is up 27% in a one year period.
Finance Minister Jim Flaherty even had something to say about the overbuilding as he shot down builders who keep selling unbuilt units and dumping supply into the market which is coming close to a point that supply is outpacing demand. He’s noted as saying, “I do worry about the last person buying a condo in Toronto and people getting caught.” These are the same guys that were looking to get out of the mortgage insurance business by selling Canada Mortgage & Housing Corporation (CMHC). The agencies board has already debated the move more than once as housing prices make their way into bubble territory with CMHC holding roughly $550 billion in insurance with most of it on high ratio, high risk mortgages. What do you think? Please comment below.
Please note that I will be away for the next few weeks focusing a little more time on my perfecting my business and attending the mortgage summit here in Toronto. The news will be returning on June the 8th. Stay tuned for any additional updates or follow me on Facebook
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