The Canada Mortgage and Housing Corporation (CHMC) promotes itself as being Canada’s national housing agency for almost 70 years.
Last week, the CMHC published the fourth quarter assessment for Canada and 15 major urban markets. I think we all expected Vancouver and Toronto to be red-flagged for overvaluation.
Looking at the other 13 cities, not much has changed since the last quarter. In fact, the overvaluation situation in Saskatoon has lessened.
Price acceleration in Hamilton, Ont., and Victoria, B.C., has increased slightly over the past three months. In fact, Hamilton, is the only city that has had its overall assessment change rating colours since last quarter.
According to this assessment report, the concerns that are being found in Canada’s two primary urban centres are spreading to other communities.
It is interesting to note that if Toronto and Vancouver were excluded from the study, then the increase in house prices across the country would have only been six per cent as opposed to 11 per cent. In fact, if one excludes Ontario and British Columbia, house prices decreased by three per cent across the eight other provinces combined. Once again, two provinces and two cities appear to be all that counts in assessing an entire country.
Nothing changed in the assessment of Winnipeg. Once again, we are green and good across the board with a cautionary note in inventory levels of unsold units. Even though it was noted that inventory levels have declined substantially and absorptions have increased, the grade remained the same. Given that Halifax was the only city in Canada to receive green across the board (strange since Halifax has been in a building slump for two years), I guess we have to take our solitary yellow and move on. It’s like that teacher who refused to give out A’s or A+; we’re just going to have to accept that we’re not getting greens and that Winnipeg’s housing market is among the most secure in Canada.
Mike Moore is president of the Manitoba Home
Last week, we talked about the new mortgage rules introduced by the federal government; rules that were designed to slow down the price escalation that has been going on in Vancouver and Toronto.
Whether this stress test of qualifying at higher mortgage rates succeeds in these two cities or not remains to be seen; however, it is fairly certain that these rules will hurt almost every other Canadian city that didn’t have escalating price problems. Preliminary calculations are that some new home buyers could have their mortgages affected by $20,000 to $40,000.
Now, they’ve managed to cool down an entire country. Local economies will suffer from national actions.
Also at the national level, the Canadian Borders Services Agency, in a knee-jerk reaction to a single complaint, increased tariffs on gypsum board (drywall) by anywhere from 105.2 per cent to 276.5 per cent. This will add an extra $1,500 to $2,500 in cost to the average new home. Little to no consultation was done.
You may also recall the City of Winnipeg increased permit fees on new home construction by an outrageous 62 per cent commencing June 1 of this year. Development permit fees increased by considerably more. Consultation, openness and transparency was zero save for a meeting on the Friday before the passing by council. With the simple raising of hands at a council meeting, millions of dollars were sucked out of the pockets of Winnipeg taxpayers.
Last but not least, is the growth fee/development charge/impact fee that the City of Winnipeg most recently announced for vote in October and implementation in May. The name is immaterial; it’s another new tax. The recommendation is to impose an arbitrarily calculated fee on all new homes, all office construction, all commercial construction, all industrial construction and all infill construction over the next three years. Research and reasoning were deeply flawed.
Intent was clear before the process began. The results are the same.
Affordability at the local level has taken a tremendous hit; one that hasn’t been seen since the introduction of the GST in 1991. For years after the GST was introduced, the residential construction industry went into hibernation. Are we willing to go down that path again?
Mike Moore is president of the Manitoba Home Builders’ Association.
On Monday, Oct. 3, federal Finance Minister Bill Morneau proposed a series of changes to federal policies and legislation affecting mortgage loan insurance, mortgage lending rules and tax treatment of capital gains from principal residences for foreign buyers.
Both the Canadian and Manitoba Home Builders Associations have serious concerns for potential homebuyers, particularly first-time buyers. Of particular concern is the "stress test" whereby all insured homebuyers must qualify for a mortgage at the Bank of Canada’s conventional five-year fixed posted rate, which is much higher than actual rates.
This will reduce the amounts available to buyers, thereby locking out many first-time buyers and possibly buyers who have already qualified but not yet secured their mortgage.
Conventional mortgages will also be affected by new portfolio insurance rules. According to a CHBA-commissioned study, one-third to one-quarter of first-time buyers could be removed from the market.
It appears as though the legislation was introduced as a response to rapidly rising prices in Toronto and Vancouver. However, federal legislation is federal legislation, so the entire country is impacted. The intent may have been to protect homebuyers from possible increases to interest rates in the future, but there is still no sign of that happening.
The aforementioned stress test requires buyers who may qualify for a five-year rate of 2.59 per cent to qualify at 4.64 per cent. It also sets a ceiling of 39 per cent for household carrying costs. Since only one in every 357 Canadian homeowners (and even fewer in Manitoba) defaults on a mortgage, are we attempting to solve a problem that doesn’t exist?
The unintended result is that renters who want to become buyers are going to be kept out of the market longer. An example floated was that someone who could afford $1,500 in monthly rent may not be able to afford or qualify for a monthly mortgage payment of $1,100 or $1,200. The same principle will apply to those people hoping to move up in the housing market. Their purchasing power gets downgraded under this new system.
One unfortunate consequence of this federal action may be stagnancy of the housing market in slow-growth municipalities such as Winnipeg. If renters cannot afford to be first-time buyers under this new scenario, apartments won’t open up for those wanting to move here. If current owners wishing to move up in price range find it more difficult to do so, movement in the housing market slows down considerably.
Finally, demand then slows for the new-home market, thereby negatively impacting growth and mobility in the city. This hits us where it hurts — job losses.
Creating a national policy for a two-city problem sounds like a strategy that needs to be revisited.
Mike Moore is president of the Manitoba Home Builders’ Association.