Budget 2016 Highlights

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Finance Minister Morneau’s budget includes many new infrastructure spending initiatives that will support our economy and help continue our growth, albeit controlled, with a view to the long-term success of the country. His budget is focused on middle-class families, seniors and veterans, helping the less fortunate, committing to a clean economy, and strengthening relationships with indigenous peoples.

Here are a few highlights that specifically affect the mortgage and housing sectors​:

Affordable Housing
The government announced it will spend $2.3 billion over the next two years. A significant portion of this will be allocated to provinces and territories were the need for investment is greatest. There will also be considerable investment in First Nations, Inuit and northern housing.  The government also announced it will invest $208 million over five years to create an “Affordable Rental Housing Innovation Fund” to be administered by CMHC.

Researching the Impacts of Foreign Ownership
Minister Morneau stated the government will investigate the impact of foreign ownership on housing and household indebtedness. Statistics Canada will develop methods for gathering data on foreign ownership on purchases of Canadian housing.

Introducing a Bank Recapitalization “Bail-in” Regime
To protect Canadian taxpayers in the unlikely event of a large bank failure, the government is proposing to implement a bail-in regime that would impose bank shareholders and creditors be held responsible for the bank’s risks—not taxpayers. This would allow authorities to convert eligible long-term debt of a failing bank into common shares to recapitalize the bank and allow it to remain open and operating. Such a measure is in line with international efforts to address the potential risks to the financial system and broader economy of institutions perceived as “too-big-to-fail”.

We will continue to monitor the discussions that result from the budget announced today and keep you informed of further developments.

*The above article is courtesy of Mortgage Professionals Canada, our industry association.
*Picture courtesy of Macleans.ca

 

What’s coming for Canada’s economy

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VERICO economist Michael Campbell gives us an overview into the current state of the Canadian economy and what you should be aware of.

After continually underestimating the impact of falling resource prices – especially oil, the Bank of Canada has come to realize that this is a major restructuring of the economy that it estimates can take up to 5 years and remove $50 billion out of the economy annually.

While the economic pressures are focused in Alberta, Saskatchewan and Newfoundland – the economy outside resources appears to be moving along.

The big economic hope on the short term rests on a falling loonie that represents a de facto 40% plus pay cut for Canadians over the last 2 ½ years. Given that 75% of our exports go to the States, exporters will be thrilled with the lower dollar.

We’re also looking for a big year in tourism thanks to the low dollar. The drop in the loonie has already spurred a 21% increase in same day visit from the US in the first 10 months of 2015 while same day visits to the States by Canadians dropped 9.3%, which is good news for retail.

[Click here] to review the full report.

 

Rebalanced Canadian Economy Supports Healthy Real Estate Markets Across the Country

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In the third quarter of 2015, home prices showed moderate to strong year-over-year increases in most markets in Canada, according to the Royal LePage House Price Survey¹ released today.  While the effects of the crude oil shock are still filtering through the economy, the country’s non-energy sectors are beginning to regain momentum as a lower Canadian dollar stimulates sharply higher exports, particularly to the U.S., supporting overall consumer confidence and the strength of Canada’s real estate markets.

According to the report and newly introduced Royal LePage National House Price Composite, comprising house values in 53 of the nation’s largest real estate markets, the price² of a home in Canada increased 8.0 per cent year-over-year to $502,643 in the third quarter. The price of a two-storey home rose 9.9 percent year-over-year to $615,304, and the price of a bungalow increased 6.8 per cent to $421,757. During the same period, the price of a condominium increased 2.7 per cent to $338,945.

“Economic slowdowns in energy-dependent markets, most notably in western Canada, have in part been offset by both renewed industrial activity in other parts of the country and the Bank of Canada’s recent interest rate cuts,” said Phil Soper, chief executive officer, Royal LePage. “In line with recent quarters, strong national home price increases are largely being driven by continued double-digit percentage increases in the Greater Toronto Area and Greater Vancouver, where housing affordability is already becoming a growing challenge for many individuals and families.”

“Unlike the economic results seen in recent years, 2015 has been positive for Ontario, resulting in strong consumer confidence and increased housing market activity,” continued Soper. “The strength of the U.S. economy coupled with a lower Canadian dollar has greatly increased sales in Ontario’s manufacturing and services export industries.  Domestically, rising economic fortunes, underpinned in part by higher residential real estate values, provide consumer-driven support for a wide range of industries, from financial services to the auto sector, further sustaining economic momentum and housing demand in a number of Ontario regions.”

In the third quarter, Greater Toronto Area (GTA) home prices saw an aggregate year-over-year increase of 11.3 per cent across housing types surveyed, to a price of $612,261, while the price of a home in the City of Toronto climbed 11.2 per cent to $639,970.  In a few cases, house prices in Toronto’s suburbs are outpacing those in central parts of the city.  During the quarter, the median price of a standard two-storey home in Richmond Hill and Vaughan increased 18.6 per cent year-over-year to $963,561 and 18.0 per cent to $842,173, respectively, while the price in Toronto rose 17.1 per cent to $961,656.

“As homes in legacy central Toronto neighbourhoods move increasingly out of reach, we are observing that the more affordable areas in Southern Ontario, including the GTA suburbs, are experiencing substantial price appreciation and heightened sales activity levels,” said Soper.

Over the same period, British Columbia’s Lower Mainland region continued to see exceptional house price increases, with the price of a home in Greater Vancouver rising 12.9 per cent year-over-year to $928,532.  As with Toronto, house price increases in some surrounding areas outpaced those in the city core.  A notable difference is that these prices are now in excess of $1,000,000.  The median price of two-storey homes in the cities of Richmond and Burnaby saw year-over-year increases of 23.5 per cent to $1,200,462 and 20.9 per cent to 1,184,385, respectively, while the price of a two-storey home in the City of Vancouver increased 17.3 per cent to $1,925,491.  Meanwhile, the median price of a standard two-storey home in North and West Vancouver increased to $1,267,113, and $2,775,782, respectively.

“Overall, economic growth in British Columbia, in conjunction with migration into the province, continues to drive local housing activity. We expect this to continue through the balance of 2015,” said Soper.  “Interestingly, so far in 2015, Vancouver job growth has not kept up with the leading regions of the country, which is at odds with the level at which its housing market is appreciating.  This disconnect could reflect an inflow of retired homebuyers, but it also lends some credibility to the argument that housing in this market is being influenced by international buyer activity.”

After years of outpacing the rest of the country, Regina and St. John’s home price increases are now firmly below the national average, but are remaining stable.  Calgary and Edmonton’s housing markets continue to hold firm, maintaining stability amid continued economic uncertainty.  Regions in Atlantic Canada are showing mixed results, with a clear exception in Halifax which is showing healthy year-over-year price increases in most housing categories surveyed.  Meanwhile, balance appears to be returning to major Quebec housing markets, as the lower Canadian dollar supports the province’s manufacturing and export sectors.

“Home ownership remains a bright light amid unsettled investment and savings options in volatile global capital markets.  As we lead up to election day, it’s not surprising that all of the major political parties are acknowledging the housing sector’s prominence as the foundation on which the economy has been built for years, and a critical foundation upon which Canadians can build their savings,” concluded Soper.

Beginning this quarter, Royal LePage’s House Price Survey includes the Royal LePage National House Price Composite comprising house values for 53 of the nation’s largest real estate markets through the use of a proprietary, custom-built system that analyzes a housing database containing millions of real estate transactions. The enhancements are made possible through Royal LePage’s collaboration with its sister company, Brookfield RPS, a leader in residential real estate data and analytics in Canada.

BofC Lowers Overnight Rate Target to 1/2 Percent

Please find below the Bank of Canada’s press release regarding their decision to lower the overnight rate to 1/2 of a percentage:

“The Bank of Canada today announced that it is lowering its target for the overnight rate by one-quarter of one percentage point to 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.Total CPI inflation in Canada has been around 1 per cent in recent months, reflecting year-over-year price declines for consumer energy products. Core inflation has been close to 2 per cent, with disinflationary pressures from economic slack being offset by transitory effects of the past depreciation of the Canadian dollar and some sector-specific factors. Setting aside these transitory effects, the Bank judges that the underlying trend in inflation is about 1.5 to 1.7 per cent.

Global growth faltered in early 2015, principally in the United States and China. Recent indicators suggest a rebound in the U.S. economy in the second half of this year, and growth is expected to be solid through the projection. In contrast, China is slowing amid an ongoing process of rebalancing to a more sustainable growth path. This has pulled down prices of certain commodities that are important to Canada’s exports. Financial conditions in major economies remain very accommodative and continue to provide much-needed support to economic activity. Global growth is expected to strengthen over the second half of 2015, averaging about 3 per cent for the year, and accelerate to around 3 1/2 per cent in 2016 and 2017.

The Bank’s estimate of growth in Canada in 2015 has been marked down considerably from its April projection. The downward revision reflects further downgrades of business investment plans in the energy sector, as well as weaker-than-expected exports of non-energy commodities and non-commodities. Real GDP is now projected to have contracted modestly in the first half of the year, resulting in higher excess capacity and additional downward pressure on inflation.

The Bank expects growth to resume in the third quarter and begin to exceed potential again in the fourth quarter, led by the non-resource sectors of Canada’s economy. Outside the energy-producing regions, consumer confidence remains high and labour markets continue to improve. This will support consumption, which will also receive a fiscal boost. Recent evidence suggests a pickup in activity and rising capacity pressures among manufacturers, particularly those exporters that are most sensitive to movements in the Canadian dollar. Financial conditions for households and businesses remain very stimulative.

The Bank now projects Canada’s real GDP will grow by just over 1 per cent in 2015 and about 2 1/2 per cent in 2016 and 2017. With this revised growth profile, the output gap is significantly larger than was expected in April, and closes somewhat later. The Bank anticipates that the economy will return to full capacity and inflation to 2 per cent on a sustained basis in the first half of 2017.

The lower outlook for Canadian growth has increased the downside risks to inflation. While vulnerabilities associated with household imbalances remain elevated and could edge higher, Canada’s economy is undergoing a significant and complex adjustment. Additional monetary stimulus is required at this time to help return the economy to full capacity and inflation sustainably to target.appropriate. Therefore, the target for the overnight rate remains at 1/2 per cent.”

Provincial Outlooks: Ontario on the path to a bright year while Alberta will post a decline in GDP

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Although oil prices seem to have stabilized, Alberta’s economy will post an overall decline in real gross domestic product (GDP) this year, according to The Conference Board of Canada’s Provincial Outlook: Spring 2015.

“Alberta’s economic performance will be underwhelming this year and next, especially compared with recent years,” said Marie-Christine Bernard, Associate Director, Provincial Forecast, The Conference Board of Canada. “Oil prices remain well below break-even levels for most new projects in the oil patch, and conditions are not expected to turn around until sometime next year.”

Reminiscent of last year, the Ontario economy got off to a slow start this year. The weakness, however, will be temporary, as economic growth should pick up in the coming quarters. Overall, real gross domestic product (GDP) is forecast to expand by 2.6 per cent in 2015 and 2.3 per cent in 2016.

“Ontario has not performed up to expectations, but the outlook over the short term remains positive, as strength in the United States economy will help bolster the province,” said Bernard. “Along with exports, consumer spending will continue to increase at a good pace in Ontario, fuelled by improving consumer confidence.”

Saskatchewan’s economy will feel the effects of the drop in oil-related activities in 2015. However, the province is not expected to fall into recession this year, as other industries will keep the economy growing.

“With the oil sector an important part of the Saskatchewan economy, the province is feeling the impact of lower oil prices. The number of wells drilled was down this past winter, and capital expenditures in the energy sector are not expected to recover until 2017,” said Bernard. “However, strength in potash and metal mining, as well as a rebound in the agriculture sector, will temper the impact of lower crude oil prices on Saskatchewan’s economy.”

Manitoba’s economic performance will be one of the strongest among the provinces in 2015 and 2016.

Manitoba is expected to post real GDP growth of 2.8 per cent in 2015 and again in 2016, when it will lead all provinces.

“As a wind of change blows through the country thanks to the slide in oil prices, Manitoba will be one of the country’s strongest economic performers until at least 2016,” said Bernard. “Strong growth in construction, a rebound in agriculture, and stable domestic demand are expected to lift labour markets and increase disposable household income for Manitobans.”

View Report 

BofC Maintains Overnight Rate Target at 3/4 Percent

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Please find below the Bank of Canada’s press release regarding their decision to keep the overnight rate at 3/4 of a percentage — in line with what most economists expected:

“The Bank of Canada today announced that it is maintaining its target for the overnight rate at 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent.

Inflation in Canada continues to track the path outlined in the Bank’s April Monetary Policy Report (MPR). Total CPI inflation is near the bottom of the Bank’s 1 to 3 per cent inflation control range, largely due to the transitory effects of sharply lower energy prices. Core inflation remains above 2 per cent, boosted by the pass-through effects of past depreciation of the Canadian dollar, as well as certain sector-specific factors. Seeing through the various temporary factors, the Bank estimates that the underlying trend of inflation is 1.6 to 1.8 per cent, consistent with persistent slack in the economy.

The outlook for the Canadian economy also remains largely in line with the April MPR. While a weak first quarter in the United States has raised questions about that economy’s underlying strength, the Bank expects a return to solid growth in the second quarter. This will help advance the rotation of demand in Canada toward more exports and business investment. Recent indicators suggest consumption in Canada is holding up relatively well, given the impact of lower oil prices on gross domestic income.

Despite the recent back-up in global bond yields, financial conditions for Canadian households and firms remain highly stimulative. The Canadian dollar has strengthened in recent weeks in the context of higher oil prices and a softer U.S. dollar. If these developments are sustained, their net effect will need to be assessed as more data become available in the months ahead.

Although a number of complex adjustments are under way, the Bank’s assessment of risks to the inflation profile has not materially changed. Risks to financial stability remain elevated, but appear to be evolving as expected. Weighing all of these risks, the Bank judges that the current degree of monetary policy stimulus remains appropriate and therefore the target for the overnight rate remains at 3/4 per cent.”

Housing Markets Expected to Remain Stable Says CMHC

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According to CMHC’s second quarter 2015 Housing Market Outlook, Canada Edition1, housing markets will remain stable with housing starts moderating slightly in 2015 and 2016. There are, however, a number of risks and vulnerabilities that can affect the market outlook for Canada and each province. To account for these risks and vulnerabilities, CMHC produces forecast ranges for resale and new home markets.

“Lower oil prices are contributing to disparities between provincial housing markets. A slowdown in housing starts and resale transactions in oil-producing provinces such as Alberta will be partly offset by increased housing market activity in other provinces, such as Ontario and British Columbia, which benefit from the positive impacts of declining energy prices, a lower Canadian dollar and continued low mortgage rates,” said Bob Dugan, Chief Economist for CMHC.

“Moreover, since the inventory of completed and unabsorbed units remains above the historical average, we expect the pace of new home construction to moderate over the next couple of years as builders focus on managing the existing inventory,” added Mr. Dugan.

On an annual basis, housing starts are expected to range between 166,540 and 188,580 units in 2015, with a point forecast of 181,618 units. For 2016, housing starts are forecast to range from 162,840 units to 190,830 units, with a point forecast of 181,800 units.

MLS®2 sales are expected to range between 437,100 and 494,500 units in 2015, with a point forecast of 475,400 units. In 2016, MLS® sales are forecast to range from 424,500 units to 491,300 units, with a point forecast of 469,000 units.

The average MLS® price is forecast to be between $402,139 and $439,589 in 2015, with a point forecast of $422,129. For 2016, the average MLS® price is forecast to be between $398,191 and $457,200, with a point forecast of $428,325. The gradual slowdown in the rate of price growth is explained by the expected change in the composition of MLS® sales toward more moderately priced homes. Due to the recent decline in oil prices, our assessment is that there is more downside risk than upside risk to our forecast.

CMHC Housing Market Outlook and other market analysis reports are available for download at http://www.cmhc.ca/housingmarketinformation.

Now you see it…now you don’t! Our April 2015 TREB Stats Commentary

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In an effort to assist our realtors and clients gain further insight into the Toronto real estate market, we have accumulated a database of TREB results on a monthly basis for the past 10 years (sales, avg price, new listings & active listings).  The attached document below provides our data based commentary on the month and year that was and projections/thoughts as we progress through 2015.

Should you have any questions, comments, or suggestions regarding the attached, please contact a member of the team or send an email to info@thelangteam.ca

Click here for – [The Lang Team – April 2015 TREB Stats/Commentary.pdf]

BofC Keeps Rates Flat

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Please find below the Bank of Canada’s press release regarding their decision to keep the overnight rate at 3/4 of a percentage — in line with what most economists expected:

“The Bank of Canada today announced that it is maintaining its target for the overnight rate at 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent.

Total CPI inflation in Canada has fallen as expected, reflecting the significant drop in oil prices. Core inflation remains close to 2 per cent and continues to be temporarily boosted by the pass-through effects of the lower Canadian dollar, as well as sector-specific factors.

The global economy is evolving broadly in line with projections in the Bank’s January Monetary Policy Report (MPR). The United States remains the main source of momentum in the global economy, while headwinds to growth linger in many regions. In this context, a growing number of central banks have taken actions to ease monetary conditions. Crude oil prices are close to the Bank’s MPR assumptions.

Canadian economic growth in the fourth quarter of 2014 was consistent with the Bank’s expectations. The oil price shock had a modest early impact on aggregate demand, and a larger effect on income. The Bank continues to expect that most of the negative impact from lower oil prices will appear in the first half of 2015, although it may be even more front-loaded than projected in January. Nevertheless, data for 2014 as a whole suggest the anticipated rotation into stronger growth in non-energy exports and investment is well underway.

Financial conditions in Canada have eased materially since January, in response to the Bank’s recent monetary policy action and to global financial developments. This easing is reflected across the yield curve and in a wide range of asset prices, including the Canadian dollar. These conditions will mitigate the negative effects of the oil price shock, further boosting growth through stronger non-energy exports and investment.

In light of these developments, the risks around the inflation profile are now more balanced and financial stability risks are evolving as expected in January. At present, we judge that the current degree of monetary policy stimulus is still appropriate and the target for the overnight rate remains at 3/4 per cent.”

Canadians spending more on home improvement and travel

Canadian consumer spending increased by a small margin following two consecutive quarters of stagnant growth, according to the Quarterly Spending Report released by Moneris Solutions Corporation (“Moneris”), Canada’s largest credit and debit card processor.

Moneris’ Quarterly Spending Report revealed that consumer spending rose 0.40 per cent relative to the same period last year. Spending climbed during the summer months, with a 0.5 per cent increase in July and 0.62 per cent in August before tapering off to 0.01 per cent in September. Canadians spent more on improving their homes and on vacations, and less on restaurants and entertainment, according to Moneris.

“While this is the first time that Moneris has recorded three consecutive quarters of flat consumer spending, key areas of growth emerged,” said Angela Brown, President and CEO of Moneris. “Summer 2014 demonstrated Canadians’ keen interest in home improvement and travel. It will be interesting to see if that trend continues into the remainder of the year or if the holiday season will see spending spikes revert back to entertainment and retail.”

Spending rose in six out of nine categories highlighted in Moneris’ Quarterly Spending Report including household (3.75 per cent), airlines (4.32 per cent) and drug stores (1.81 per cent), but fell in the restaurant category, where dine-in restaurants witnessed a decrease (-6.4 per cent) in spending. Accompanying the rise in vacation spending, consumers spent more on luggage and leather goods (3.62 per cent).

Spending at home and away

Purchases at home improvement stores rose by 8.49 per cent over the same period last year, and spending on plumbing and heating equipment, and on electrical contractors climbed by 5.14 per cent and 5.08 per cent respectively.

“Home is obviously very important for many Canadians,” said Brown. “Their spending patterns demonstrate enthusiasm for do-it-yourself projects, but they are willing to call in the professionals to perform specialized work, such as electrical and plumbing. Those who choose to leave the comfort of their houses are choosing to spend more on vacations as opposed to one-off experiences such as dinner and a movie.”

While spending on apparel decreased modestly (-2.07 per cent) overall, consumers spent 8.05 per cent more on family clothing in September as children headed back to school. In the same vein, spending in bars rose in August (1.34 per cent), but Canadians buttoned down as the kids went back to school, and spending at watering holes decreased slightly (0.62 per cent) in September over the previous year.

Growth in contactless payments

The number of contactless transactions1 grew by over 200 per cent over the same period in 2013. Some 9.6 per cent of credit transactions were contactless; 3.7 per cent of debit transactions were contactless. The number of contactless purchases exceeding $50 increased nearly fivefold.

“Contactless transactions continue to represent an area of growth in the Canadian payments market as more consumers become comfortable with the technology,” said Brown. “We anticipate this trend will continue, particularly with the growth of mobile payments technology.”

Modest gains, some losses

Most Canadian provinces posted gains under 1 per cent (0.46 per cent-0.81 per cent). However, sales in Prince Edward Island and British Columbia increased by 2.31 per cent and 1.15 per cent respectively. Quebec and New Brunswick were the only provinces to post losses (-1.32 per cent, -1.51 per cent).

About The Moneris Spending Report

The Moneris Spending Report provides a snapshot of consumer spending activity in Canada by analyzing credit and debit card transaction data. As the market leader with the largest merchant base, Moneris presents detailed analysis and insight on a quarterly basis. The percentages cited are derived from actual sales volumes—the dollar values of credit and debit card transactions being processed by Moneris merchants — compared to the sales volumes from the prior year.