Real Estate’s Double-Edged Sword

It’s easy to forget the power of leverage.

With $100,000 of income, a creditworthy borrower can now qualify for almost three times the mortgage they did in the early 1980s.

Decades of falling interest rates and expanding credit availability have made that possible, while acting as a giant lever for home values and mortgage activity.

The prosperity that’s been created in our industry this millennium is truly phenomenal, and it’s largely thanks to an unprecedented vertical climb in real estate.

Perhaps no chart illustrates the result of real estate leverage, imbalanced housing supply and rising incomes better than this one.

Source: Karl Schamotta, Chief Market Strategist, Cambridge Global Payments (adapted from a Federal Reserve Bank of Dallas dataset developed by Mack and Martínez-García)

Fifteen years ago, housing bears started warning that home prices were deviating from fundamentals. This graph shows what happened next.

Needless to say, the market had its own ideas about which “fundamentals” mattered.

And of course, housing bears said the very same thing ten years ago. Five years later they echoed the same warning. Today, they’re saying it again. But this time, they’re arguably getting closer to being right.

Catalysts change

Contrary to bearish disinformation, real estate values don’t rise on air. Prices—and our businesses as mortgage brokers—would never be at today’s heights if it weren’t for fundamental forces (falling rates, rising incomes, population growth, urbanization, supply shortages, etc.). Speculative mindsets aside, people pay ever more for properties because actual fundamentals give them reason too.

But fundamentals are a funny thing. They change.

When prices get so unattainable that Canadians making above-average incomes can’t afford even average homes, supply adjusts. It has to.

Of course, so far it hasn’t, at least not to any game-changing degree. But, given enough time and extremes prices, supply always adapts. That’s been true all throughout history, even if only for a short time—whether driven by developers in search of excess profits, by governmental policy or by shifting trends (like work-from-home or high-speed commuting, which makes building on cheaper land economically viable).

What’s at stake?

Canada’s economy relies twice as much on residential investment to fuel GDP, versus 20 years ago. For the first time ever, residential investment like new construction, renovation services, mortgage brokering and real estate services total over 10% of GDP.

In all, residential investment accounted for a remarkable 54% of GDP gains in the first quarter, according to Edge Realty Analytics.

Canada’s economy literally cannot afford its housing train going off the rails.

Watch those rates

That brings us back to our original premise: Leverage is a powerful thing. That is, until you run out of it.

The two-way sword of leverage cuts in the wrong direction when interest rates climb. And if one believes implied pricing in the bond market, rates are headed roughly 175 basis points higher in the next 24 months.

Take away rock-bottom rates after a parabolic price increase—let alone after other credit tightening (e.g., tougher qualifying rates or limits on amortizations, debt service ratios or non-prime lending)—and watch the magic of leverage work in reverse.

I’m not brazen enough to predict when the housing tide turns, but it will ultimately turn, for three reasons:

1. In expansionary cycles, inflation always exceeds the Bank of Canada’s 2% target long enough to warrant rate hikes.
2. The market will hit a point—if it hasn’t already—where average incomes are simply insufficient to qualify for financing on average homes.
3. Supply will catch up, be it from new listings by nervous sellers hoping to lock in windfall capital gains, government initiatives, or just good old developer greed (the productive greed that incentivizes development).

When all this happens, that’s when housing bulls, industry professionals and homeowners (those who perish the thought of losing their accumulated home equity) will witness the inevitable, a new real estate cycle…one where leverage works in reverse.

–Robert McLister

The Latest in Mortgage News: BoC Deputy Governor Says Rate Hikes Could Come Later Than Expected

Financial markets may be pricing in the first interest rate hikes as early as March, but they shouldn’t be too confident about that timing.

That was the message from Bank of Canada Deputy Governor Lawrence Schembri during a question and answer session following a speech on the labour market this week.

“There’s a lot of uncertainty about the timing of the closing of the output gap, so one should be careful not to assume it’s necessarily going to be the second quarter. It’s a range of six months—that’s our best estimate,” he said.

The Bank of Canada said last month that it expects economic slack to be absorbed in the middle quarters of 2022, which is when it anticipates the first move in the coming rate-hike cycle.

But labour market uncertainty is making it more difficult to pinpoint the timing of the first rate hike, Schembri argued.

“Our assessment of labour market conditions and underlying capacity and inflationary pressures is now more difficult,” he said. “Consequently, more uncertainty exists around the timing of when the output gap will close and inflation will return sustainably to our 2% target.”

Bank of Canada Governor Tiff Macklem sent a similar message this week in an opinion piece for the Financial Times. He noted that while the timing of the next rate hike is “getting closer,” it’s still very dependent on economic conditions.

“For the policy interest rate, our forward guidance has been clear that we will not raise interest rates until economic slack is absorbed,” he wrote. “We are not there yet, but we are getting closer.”

BoC Survey Shows Consumers Expect to Increase Spending “Significantly”

A recent Bank of Canada survey of consumer expectations found Canadians plan to increase their spending “significantly,” although they continue to remain cautious.

“Pent-up demand for some goods and services remains after long periods of restrictions. This is likely supported by extra savings,” the BoC reported. It noted that over 40% of respondents reported saving more than usual during the pandemic due to reduced spending.”

Respondents who accumulated savings intend to spend about one-third of these funds by the end of 2022—in fact, they reported having already spent about 10 percent of their extra savings in 2021.”

They also expect inflation to remain higher in the near term due to supply disruptions, but for the most part they don’t expect the situation to persist long term.

Nova Scotia Eyes Housing Tax for Out-of-Province Buyers

For those looking for more affordable housing in Nova Scotia, prices could become a little more expensive.

Nova Scotia Premier Tim Houston recently instructed the province’s finance minister to impose a levy of $2 per $100 of assessed property value on properties purchased by out-of-province buyers.

“The housing crisis is real and Nova Scotians expect us to act,” said Houston. “We’ll do what needs to be done to make sure Nova Scotians can afford a place to call home. We will not wait.”

According to the Canadian Real Estate Association, the average purchase price in Nova Scotia in October was $365,692. Based on a theoretical assessed value of $300,000, the proposed tax would work out to about $6,000.

In the capital of Halifax, the average price is even higher, having risen nearly 25% over the past year to $485,642 as of October.

DLC Group Reports $75 Billion in Funded Mortgages

Earlier this week, Dominion Lending Centres Inc. reported third-quarter mortgage volumes totalling $22.6 billion, a 61% increase compared to a year earlier.

Year-to-date funded volumes (as of Sept. 30) for the DLC Group of Companies—which includes Dominion Lending Centres, Mortgage Architects, Mortgage Centres Canada and Newton Connectivity Systems—were $57.9 billion, a 71% increase from a year earlier. Volumes are now at $75 billion for the past 12 months as of Sept. 30. By comparison, rival brokerage network M3 Group, which encompasses Invis, Mortgage Intelligence, Mortgage Alliance and Verico, reported 12-month funded volumes of $67 billion.

“We are very proud of our franchisees and mortgage professionals, Gary Mauris, Executive Chairman and CEO, said in a statement. “Their tremendous hard work has directly contributed towards another record quarter for the DLC Group. Similar to Q2 2021, the Q3 2021 results for funded volumes, revenues and adjusted EBITDA are the highest quarterly financial and operating results in the DLC Group’s 15-year history.”

DLC Group said it improved its leverage by repaying $3.2 million from free cash flows towards its Sagard credit facility, bringing its outstanding principal balance to approx. $27.8 million (CAD).

–Steve Huebl

How a Mortgage Pre-Approval Can Protect You from Rising Rates

Over the past month, we have seen several fixed mortgage rate hikes from the banks and other lenders.

Whereas rates below 2% were readily available one month ago for most uninsured 5-year fixed mortgages, the average is now around 2.79% at most banks. We all suspected rates would rise eventually, but this is happening much sooner than expected.

Do Rising Interest Rates Affect Mortgage Pre-Approvals?

Rising interest rates make mortgage pre-approvals much more relevant and meaningful.

Not only does a mortgage pre-approval give you the lender’s estimate of your borrowing power, but it also offers you an interest rate hold for up to 120 days in many cases. In times of steady or declining rates, you barely pay attention to your pre-approval rate. But these days, this rate hold can be a total game-changer.

If you are pre-approved for a fixed-rate mortgage, you may find yourself in a very fortunate situation when rates increase, because as long as your mortgage funds while your pre-approval is valid, your mortgage lender should honour your pre-approval rate.

This past week, we have clients who completed their home purchase with pre-approved 5-year fixed rates of 1.89%; a rate that simply does not exist anymore for uninsured mortgages.

Is it Worth Getting a Mortgage Pre-Approval for a Variable-Rate Mortgage?

Yes, it absolutely is worthwhile. The rate for a variable-rate mortgage is expressed as a discount to the lender’s prime rate – and that discount is what could change during your pre-approval period.

Today, it is reasonably easy to get a variable-rate mortgage at 1.30%. With the Bank of Canada’s prime rate sitting at 2.45%, your variable rate is expressed as prime minus 1.15% (a discount from prime of 150 percentage points).

Your pre-approval will lock in that large discount regardless of changes to the prime rate itself.

But if you recall, in 2020 we saw a sudden and profound change to the discount for variable-rate mortgages in the early days of the pandemic. The discounts actually disappeared, and if you wanted a new variable-rate mortgage it would have been at the prime rate, or even higher.

Fortunately, this didn’t last too long. In time, order was restored to the markets, and so were the variable-rate discounts. But this experience proved it is also good to pre-approve a variable-rate mortgage.

Do Some Variable-Rate Mortgages Offer Fixed Payments?

If you are pre-approved for a variable-rate mortgage, in most cases your payment will be immediately affected by changes to the prime rate. But some lenders offer variable-rate mortgages where the payment remains constant throughout the term of the mortgage.

That can cushion the blow to your monthly cash flow, at least until your renewal date. In this scenario—where the payment remains the same—if rates rise, more money will go towards interest and less towards the principal. The opposite is true, of course, when rates fall.

This sort of variable-rate mortgage is quite compelling these days. Being able to lock in your mortgage payment at 1.30%, versus 2.79% for the fixed rate alternative, is appealing to home buyers and refinancing homeowners who are cash flow-conscious, above all else.

What are the Benefits of a Mortgage Pre-Approval?

1. You have protection—or insurance—against higher rates during your pre-approval period (for many lenders, this can be up to 120 days). Let everyone else pay more than you, because your rate hold gave you every advantage with no disadvantages. If rates had fallen instead, you would still be a free agent and could benefit from those lower rates. So, with a pre-approval you can have your cake and eat it too.
2. You know your borrowing power. This is so essential when buying a home, in particular. One of the worst things you can do is fall in love with a home that is not within your budget. But if you do find yourself in that situation, you must consider other means to solve the problem. For example, you can source a bigger down payment or ask a family member to co-sign your mortgage application. There are numerous occasions when having a co-signer for your mortgage is beneficial.
3. In some cases, when you are pre-approved your credit has been checked and your application and documents have been reviewed. Note that this isn’t always the case, so be sure to ask your broker or lender. When you are house-shopping and find a property that you wish to make an offer on, you can ask your mortgage broker if the math works for that specific property. While this still isn’t a guarantee that you’ll be approved for the mortgage, the numbers can be run quickly in cases where you’ve submitted supporting documents and had a credit check as part of the pre-approval process.

The Takeaway

Many brokers and bankers do not go out of their way to offer mortgage pre-approvals. They feel it can be a waste of their time. After all, generally only a minority of pre-approved mortgages actually fund with the lender who pre-approved them, although that percentage increases in times of rising rates when many pre-approved rates are no longer available on the market. Additionally, a pre-approval often adds a slight premium to the rate.

But, in my view, this is short-sighted. A mortgage pre-approval is totally worth the effort. We owe our home-buying clients a mortgage pre-approval whenever possible. You can expect more people will jump on this bandwagon now that rates have started to climb higher.

–Ross Taylor

Home Sales Remain Strong in Big Cities as Demand Outstrips Supply

Housing inventory continued to fall well short of demand last month in most of Canada’s largest cities.

October numbers from some key regional real estate boards show no slowdown in housing demand as new listings continue to dry up and prices continued to rise.

In Vancouver, the supply of homes for sale dipped to a three-year low, while in the Greater Toronto Area the number of new listings was down by about a third.

“Both the ownership and rental markets have recovered from the relatively short–term effects of the pandemic, but competition for ownership and rental properties is once again tight,” said John DiMichele, CEO of the Toronto Regional Real Estate Board (TRREB).

Here’s a look at October readings from some of the country’s key real estate boards:

Greater Toronto Area

Sales: 9,783

• -6.9% Year-over-year (YoY)
• +8.1% Month-over-month (MoM)

Average Price: $1,155,345

• +19.3% (YoY)
• +1.7% (MoM)

New Listings: 11,740

• -34% (YoY)
• -12.9% (MoM)

“The only sustainable way to address housing affordability in the GTA is to deal with the persistent mismatch between demand and supply. Demand isn’t going away,” TRREB said in a release. “The tight market conditions across all market segments and areas of the GTA is testament to the broadening scope of economic recovery in the region and household confidence that this recovery will continue.”

Source: Toronto Regional Real Estate Board (TRREB)

Greater Vancouver Area

Sales: 3,494

• -5.2% YoY
• +11% MoM

Despite the decline from last year’s record figures, sales were still 22.4% above the 10-year average for October.

MLS Home Price Index for all property types: $1,199,400

• +14.7% YoY
• +1.1% MoM

New Listings: 4,049

• -27.3% YoY
• -21.7% MoM

“Home sale activity continues to outpace what’s typical for this time of year and the pool of homes available for sale is in decline. This dynamic between supply and demand is causing home prices to continue to edge up across the region,” said Keith Stewart, an REBGV economist. “Rising fixed mortgage rates should eventually help ease demand, but for now sales remain strong and buyers with rate holds will remain motivated to find a property for the rest of the year.”

Source: Real Estate Board of Greater Vancouver (REBGV)

Montreal Census Metropolitan Area

Sales: 4,320

• -24% YoY
• +17.7% MoM

Median Price (single-family detached): $515,000

• +20% YoY
• +2.1% MoM

Average Price (condo): $379,000

• +18% YoY
• +4.1% MoM

New Listings: 5,515

• +20% YoY
• -5.2% MoM

“The decline in sales to pre-pandemic levels is still attributable to the large deficit of active listings in the market. Make no mistake, there is still a significant number of buyers in the market and overheating is still a factor. We are seeing renewed upward pressure on prices across all property categories,” said Charles Brant, director of market analysis for QPAREB. “The recent announcement by the Bank of Canada of a hike in the key interest rate in spring 2022, sooner than expected, could help maintain some enthusiasm until then.”

Source: Quebec Professional Association of Real Estate Brokers (QPAREB)

Calgary

Sales: 2,186

• +24% YoY
• +1.3% MoM

Benchmark Price (all housing types): $460,100

• +9% YoY
• +0.5% MoM

New Listings: 2,500

• +2% YoY
• -53.6% MoM

“Moving into the fourth quarter, the pace of housing demand continues to exceed expectations in the city,” said CREB chief economist Ann-Marie Lurie. “Much of the persistent strength is likely related to improving confidence in future economic prospects, as well as a sense of urgency among consumers to take advantage of the low-lending-rate environment.”

Source: Calgary Real Estate Board (CREB)

Ottawa

Sales: 1,677

• -21% YoY
• +4.4% MoM

Average Price (single-family detached): $716,378

• +19% YoY
• +2% MoM

New Listings: 1,960

• +1.2% YoY
• -13% MoM

“While the number of units sold followed the traditional trajectory, the lack of supply continues to put upward pressure on prices, which are holding strong and steadily increasing,” said Ottawa Real Estate Board President Debra Wright. “Low inventory and a lack of suitable housing options restrict movement along the housing spectrum. Move-up buyers and downsizers have nowhere to go, so they stay in place, but we need that exchange of properties in the marketplace to free up supply for entry-level homebuyers.”

Source: Ottawa Real Estate Board (OREB)

–Steve Huebl

Fixed Mortgage Rates Set to Climb Higher as Bond Yields Take Off

Bond yields rocketed higher following today’s Bank of Canada rate decision, making it likely that fixed mortgage rates will continue to rise.

The Bank acknowledged growing inflation concerns, saying the factors pushing prices up are “stronger and more persistent than expected.”

“The Bank is closely watching inflation expectations and labour costs to ensure that the temporary forces pushing up prices do not become embedded in ongoing inflation,” the BoC noted in its rate decision statement.

The Government of Canada 5-year bond yield jumped more than 10 basis points shortly after the announcement, to around 1.43%, before falling back slightly to 1.40%.

The 5-year bond yield, which leads 5-year fixed mortgage rates, is now up over a full percentage point since September 2020.

Fixed rates have already been rising steadily over the past few weeks, and observers say they are likely to take another leg up.

In a tweet, Ron Butler of Butler Mortgage wrote that fixed mortgage rates will be going up again. “Starting Friday, big banks will continue to move fixed rates, likely about 30 bps by the time the dust settles next Friday.”

He added that the growing spread between fixed and variable rates will continue to drive borrowers towards variable rate mortgages.

“The last time 5-year bond yields were this high, deep-discounted 5-year fixed mortgage rates were in the 2.70% range,” housing analyst Ben Rabidoux, founder of Edge Realty Analytics, wrote in his latest report. “That implies about 60 bps of hikes are coming in the next few weeks unless bond yields reverse course.”

Rabidoux explained that the Bank’s recent slowdown in bond purchases, and announcement today that it will end its quantitative easing program altogether, “means that we’ll lose the artificial downward pressure on bond yields going forward,” since that program “had the explicit goal of pushing interest rates lower than they otherwise might be.”

As for variable rates, which are tied to prime rate, which in turn is influenced by the Bank of Canada’s overnight target rate, they could start rising earlier than expected as well.

In the BoC’s statement today, it changed its forward guidance, saying for the first time it could start hiking rates “sometime in the middle quarters of 2022.”

Markets, however, think it could happen even sooner than that, pricing in the first BoC rate hike as early as March. They also see six to seven quarter-point hikes over the next 36 months.

“An April start to tightening looks increasingly likely as long as we see continued progress in the economic and labour market recovery over the next six months,” wrote RBC economist Josh Nye. “Today’s messaging doesn’t go quite as far as the 100 bps of tightening by the end of next year markets were pricing in ahead of the meeting, though the move higher in bond yields and the Canadian dollar shows investors see some validation of that view.”

The Bank of Canada’s Latest Forecasts

Here’s are the key takeaways from the Bank’s rate decision and latest Monetary Policy Report (MPR):

Overnight rate:

• Left unchanged at 0.25%, where it’s been since March 2020.

Quantitative Easing

• The Bank ended its QE (bond-buying) program, as expected.
• The Bank said it will move to a reinvestment phase, meaning, “we will purchase bonds only to replace those that are maturing so that our overall holdings of Government of Canada bonds remain roughly stable over time.”

Inflation

• The bank expects consumer price index (CPI) inflation to average:
  • around 3.4% in 2021 (vs. 3% in its July forecast)
  • 3.4% in 2022 (vs. 2.4%)
  • 2.3% in 2023 (vs. 2.2%)
• “The main forces pushing up prices—higher energy prices and supply bottlenecks—now appear stronger and more persistent than we previously thought,” the Bank said.

GDP forecast

• The Bank now expects annual economic growth of:
  • 5.1% for 2021 (vs. 6% in its July forecast)
  • 4.3% in 2022 (vs. 4.6%)
  • 3.7% in 2023 (vs. 3.3%)

–Steve Huebl

–Dr. Sherry Cooper

–Dr. Sherry Cooper

National Home Prices Rose in September as Supply Tightened

The national average home price re-accelerated in September, returning to a level last seen in May, while housing supply continued to trend down.

The average selling price in September was $686,650, up 13.9% year-over-year and 3.5% from July’s reading of $663,500.

Removing the high-priced markets of the Greater Toronto and Vancouver areas, the average price stands at $540,650.

There were 48,949 home sales in September, down 17.5% from a year earlier, but up 0.9% on a monthly basis, marking the first month-over-month increase since March, CREA noted.

Meanwhile, the tight supply conditions being seen across the country drove down the months of inventory measure to 2.1, well below the long-term average of roughly five months. New listings were also down 1.6% from July and 19.6% year-over-year.

Smaller changes in the monthly metrics suggest the market has now passed the period of extreme volatility seen since last spring, which was caused by the pandemic and related lockdowns, noted Shaun Cathcart, CREA’s senior economist.

“Having said that, given we are still stuck at around two months of inventory nationally, the thing to keep a close eye on going forward will be the behaviour of prices,” he said. “While the acceleration in home prices we saw in September was more than most would have expected, the fact that prices are now moving back in that direction is not surprising.”

Cross-Country Roundup of Home Prices

Here’s a look at some more regional and local housing market results for August:

• Ontario: $887,290 (+19.7%)
• Quebec: $458,955 (+15.4%)
• B.C.: $912,047 (+13.8%)
• Alberta: $415,821 (+3.5%)
• Barrie & District: $756,800 (+34.3%)
• Halifax-Dartmouth: $471,746 (+22.9%)
• Victoria: $861,900 (+21%)
• Greater Montreal Area: $499,700 (+20.8%)
• Greater Toronto Area: $1,082,400 (+19.1%)
• Ottawa: $639,900 (+16.3%)
• Greater Vancouver Area: $1,186,100 (+13.8%)
• Winnipeg: $318,400 (+11.5%)
• St. John’s: $291,100 (+9.6%)
• Calgary: $443,700 (+9.2%)
• Edmonton: $341,000 (+5.1%)

Looking Forward

All signs are pointing to more normalized readings in the months ahead, following what has been a turbulent and volatile 18 months for the housing market. This goes for both home sales and prices.

“The correction in sales from the unsustainable levels achieved earlier in the year is likely over, and September should mark the beginning of a modest positive trend in sales activity,” noted Rishi Sondhi, economist at TD Economics. “The key word here is modest, as interest rates are likely to grind higher moving forward, playing off against improving job markets, a rising population, and the decision by some households to plow excess savings into down payments.”

Sondhi added that federal housing policies could also provide some lift, but only to a small degree.

And where are home prices likely to go from here? Most signs are pointing up, say economists.

“The market has remained tight in seven of the 10 provinces (all favourable to sellers) and more balanced in Alberta and Saskatchewan,” wrote economists at National Bank of Canada. “These market conditions should continue to support price increases in the coming months.”

Interest rates are also expected to play a greater role in regulating demand as we head closer to the start of the next rate-hike cycle.

“One can’t help but feel as though the Canadian housing market is walking on tinder again, with demand holding at historically high levels, listings getting quickly absorbed, and price growth running steady near a 20% pace,” wrote Robert Kavcic, senior economist at BMO Economics.

“That said, 5-year fixed mortgage rates likely face meaningful upside in the months ahead, which could act as a dampener,” he added. “If not, or if there is a heavy rotation to variable [rates] and the market starts to accelerate again from here, talk of earlier Bank of Canada moves will only grow louder.”

–Steve Huebl

Sales Up in Most Cities with Busier Fall Homebuying Season Underway

Following a summer slowdown in home sales, activity started to pick up again in the country’s largest cities as the typically busier fall homebuying season kicked off in September.

“Every year, we generally see an uptick in sales, average selling price and listings after Labour Day, and September 2021 was no different,” the Toronto Regional Real Estate Board (TRREB) said in its September report.

“Compared to last year, market conditions tightened noticeably, with sales representing a substantially higher share of listings, and a significantly lower number of new listings across the board,” it added. “Resurgence in the condo market was a factor in the higher share of listings sold.”

Historically low housing supply continues to be a key factor in all markets that continues to apply upward pressure to prices.

Here’s a look at September readings from some of the country’s key real estate boards:

Greater Toronto Area

Sales: 9,046

• -18% Year-over-year (YoY)
• +5.2% Month-over-month (MoM)

Average Price: $1,136,280

• +18.3% (YoY)
• +6% (MoM)

New Listings: 13,483

• -34% (YoY)
• +27% (MoM)

“Demand has remained incredibly robust throughout September with many qualified buyers who would buy a home tomorrow provided they could find a suitable property,” said TRREB President Kevin Crigger. “With new listings in September down by one third compared to last year, purchasing a home for many is easier said than done. The lack of housing supply and choice has reached a critical juncture.”

Source: Toronto Regional Real Estate Board (TRREB)

Greater Vancouver Area

Sales: 3,149

• -13.6% YoY
• -0.1% MoM

Despite the decline from last year’s record figures, sales were still 20.8% above the 10-year average for September.

MLS Home Price Index for all property types: $1,186,100

• +13.8% YoY
• +0.8% MoM

New Listings: 5,171

• -19.2% YoY
• +28.2% MoM
• New listings were 1.2% below the 10-year average for September.

“The summer trend of above-average home sales and historically typical new listings activity continued in Metro Vancouver last month,” said Keith Stewart, REBGV economist. “Although this is keeping the overall supply of homes for sale low, we’re not seeing the same upward intensity on home prices today as we did in the spring.”

Source: Real Estate Board of Greater Vancouver (REBGV)

Montreal Census Metropolitan Area

Sales: 3,671

• -28% YoY
• +8.9% MoM

Average Price (single-family detached): $504,500

• +17% YoY
• +0.9% MoM

Average Price (condo): $365,000

• +15% YoY
• -2.7% MoM

New Listings: 5,818

• -20% YoY
• +30% MoM

“The slowdown in residential sales to a pre-pandemic level continued in September,”said Charles Brant, director of the QPAREB’s Market Analysis Department. “A return to more normal economic activity resulting from the easing of health restrictions is not the only factor that explains this situation: in addition to high prices, the lack of properties for sale is still the main cause.”

Source: Quebec Professional Association of Real Estate Brokers (QPAREB)

Ottawa

Sales: 1,607

• -31% YoY
• +2.2% MoM

Average Price (single-family detached): $702,155

• +13% YoY
• +4% MoM

New Listings: 2,252

• -22% YoY
• +10.6% MoM

“While inventory has improved slightly from the pre-pandemic years (2017-2019), it is still the principal cause for concern with just over one month’s supply in the housing stock at this time,” said OREB President Debra Wright. “With the election behind us, we hope the government will now concentrate on addressing supply issues and developing first-time homebuyer assistance touted in their reelection platform.”

Source: Ottawa Real Estate Board (OREB)

Calgary

Sales: 2,159

• +26.5% YoY

Average Price: $476,190

• +1.8% YoY

New Listings: 2,907

• +6.3% YoY

“The market continues to favour the seller, but conditions are not as tight as they were earlier this year,” said CREB chief economist Ann-Marie Lurie.

Source: Calgary Real Estate Board (CREB)

–Steve Huebl

The Latest in Mortgage News: Ontario Teachers’ Pension Plan to Buy HomeEquity Bank

The Ontario Teachers’ Pension Plan Board has taken a major investment stake in Canada’s rapidly growing reverse mortgage market with its acquisition of HomeEquity Bank.

Ontario Teachers’, the largest single-profession pension plan in Canada with over $227 billion in assets, announced Wednesday it has entered into an agreement to purchase Birch Hills Equity Partners Management, parent company of HomeEquity Bank.

HomeEquity Bank is Canada’s largest reverse mortgage lender with a 30-year history of helping Canadians access the equity in their homes.

“HomeEquity Bank is an excellent fit for our growing portfolio of leading financial services firms,” Karen Frank, Senior Managing Director of Equities at Ontario Teachers’, said in a release. “We believe the company has a high-quality management team, a solid value proposition for consumers and room to grow their business given Canada’s aging population as well as the increased attractiveness of staying in your own home as you age.”

HomeEquity, like its key competitor Equitable Bank, has enjoyed strong growth in recent years as more seniors rely on rising home valuations to support them in their retirement years. In 2020, HomeEquity completed a record $830 million in reverse mortgage originations, marking a 39% increase over the previous three years.

As of June 2021, the bank had more than $5 billion of reverse mortgages under administration.

“This record-setting growth demonstrates the appetite for reverse mortgage products is growing as millions of homeowners 55 and older are recognizing the tremendous value and flexibility they provide,” Steven Ranson President and CEO of HomeEquity Bank, said in a statement this summer.

The bank’s research found more than a quarter of homeowners 55-plus would consider tapping into their home’s equity to help fund their retirement. As a result, the reverse mortgage market in Canada is expected to grow by another $1 billion in 2021 alone.

There will be no immediate impact on day-to-day operations through the transition, and no changes to the bank’s existing relationships or contracts, said Yvonne Ziomecki, EVP and Chief Marketing Officer at HomeEquity Bank.

“Ontario Teachers’ has a long history of investing in successful financial services businesses in Canada and internationally and we look forward to supporting HomeEquity Bank during its next stage of growth,” Frank added.

BMO, National Bank Lower 5-year Fixed Rates

BMO and National Bank of Canada are the latest of the Big 6 banks to cut mortgage rates.

The moves follow last week’s rate cuts announced by RBC, TD, CIBC and HSBC.

According to data from RateSpy.com, BMO has cut its uninsured 5-year fixed rate by 25 basis points to 2.19%, and its 5-year fixed insured (high ratio) rate by 35 bps to 1.99%.

National Bank of Canada, meanwhile, dropped its uninsured 5-year fixed special-offer rate by 5 bps to 2.39%.

Of the Big 6 banks, TD currently is currently advertising the lowest 5-year insured fixed rate at 1.89%.

Elevated Inflation Could Persist Up to Two Years: BMO Economics

Upward pressure from wages, along with home, food and energy prices, could keep Canada’s inflation rate elevated at 3% over the next two years, according to analysis from BMO Economics.

The first stage of inflation, the “extreme base effects and the reopening bounces,” were like the “booster rocket that is now falling away,” wrote Douglas Porter, BMO’s Chief Economist.

However, “the potential second-stage rockets are all staring us in the face,” he added.

Those more lingering effects could come from three sources, Porter explained:

• Wage pressure: 41% of small businesses are reporting rising wages with 28% saying quality of labour is their biggest issue.
• High home prices: home prices take 12 to 18 months to start impacting the Consumer Price Index, and account for nearly one-quarter of the index.
• Strength of energy and food prices: this is partly being impacted by extreme weather.

“…if you are looking for soothing words on inflation, probably best not to approach us—similar to the U.S., our calls are at the high end of consensus, with headline Canadian CPI to average roughly 3% this year and next,” Porter wrote. “Canada has not seen a single year with an average inflation rate of 3% or higher since 1991, let alone two years in succession.”