July and August have been relatively quiet compared to what we have experienced in the mortgage industry earlier this year. However, comparatively speaking, a distinct impact has been felt over these past few weeks. We are starting to hear, and see, the effects of the new mortgage rules enforced by the government of Canada and FICOM.
Upon reviewing the headlines, the common tone was “chilling”. Canada’s market was, and is, experiencing a steady fall, with Vancouver seeing the lowest sales drop since 2000. CREA recorded a 2% drop for July. With Vancouver’s market heading for retreat, RBC has declared that Toronto is not experiencing a bubble.
US was hopeful for the start of a recovery with sale prices increasing in June even though sales dropped, but July told a different story with existing home sales and new home sales up 2.3% and 3.6% respectively, but with housing prices dropping along with housing starts.
The global economy is believed to be far removed from the early days of an upturn while the European markets have a dark outlook. One can easily feel the tension, doubt, pessimism and uncertainty constantly overshadowing any positive announcements put forward; the positive outlooks are few and far between.
However, Mr. Carney has announced that we, as Canadians, should experience domestic strength with moderate growth. Inflation dropping to 1.3% in July confirmed that interest rates would remain low for the time being. However, RBC and TD have taken it upon themselves to raise their 3-year fixed rate 0.2 percentage points to 4.05%.
Time magazine recently stated that Canadians are now richer than Americans for the first time, but not surprising, when factoring in the 2008 financial crisis’ effect on many Americans’ net worth.
CMHC is projecting a softer market with no major decline and CIBC weighed in with their expectation that the 25-34 demographic will edge off the housing downturn. “This is actually the first generation that the parents are better off than the kids and those parents will write a nice cheque,” said Benjamin Tal, deputy chief economist at CIBC World Markets.
Many commenters opposed Tal’s projection mentioning the “sandwich generation”, taking care of aging parents and costly family expenses and managing their own retirement investments will have little funds to support the necessary down payments required for the 25-34 demographic wanting to enter the market.
A Leger Marking study for CIBC supports the Tal commenters, proving that over 50% of Canadian’s aged 50-59 are planning to work after retirement to supplement their income; they have less than $100,000 in savings.
Even though some believe that the new mortgage rules will help Canadians manage their debt better, many others believe it has the potential to easily over-extend homeowners while qualified and secure young families will not be able to get the financing approval they need. RBC released this week that Canadian homes have become less affordable during Q2, which could encourage many potential buyers to choose to rent instead.
With all things considered, we are still nearing record levels of home ownership in Canada, 70%, the same percentile US hit before the big bust.
For mortgage brokers, we have yet another lender looking to exit the mortgage market and broker channel. ING direct, a 15-year-old e-bank, has Scotia, National Bank and TD lined up as potential buyers.
Are these all signs of bigger, more challenging times to come? Quite possibly, but also note that we are currently one of the strongest economies on the globe today, and if we navigate these pressures successfully, it could lead to unprecedented change for Canada’s global position and economic power.