Bank of Canada touts ?good news? rate hike

Joanne Lee-Young
The Vancouver Sun

The Bank of Canada raised its benchmark interest rate for the first time in seven years on Wednesday, moving it 25 basis points from 0.5 per cent to 0.75 per cent. The country’s five largest banks all followed, hiking their prime rates from 2.7 per cent to 2.95 per cent, which will increase the cost of borrowing when it comes to everything from variable rate mortgages to lines of credit and other loans.

Here are five things to consider:

IN THEORY

According to Ratehub.com, around 66 per cent of all mortgages held by Canadians have a five-year fixed term, meaning borrowers commit to a rate, lender and certain conditions set out for that time period.

The rest are variable rate mortgages, which usually have lower rates than fixed ones, but fluctuate with the prime, which is now moving up.

Some prudent homeowners have been preparing for this rate hike, often by paying more than they need each month to create a financial cushion for themselves.

IN THE MOST EXPENSIVE REAL ESTATE MARKET

But others — especially those who have had to stretch their budgets and massage the interest rate math in order to get into Canada’s most expensive real estate market — will feel the pinch.

Some are carrying significant mortgages, sometimes with as little as five or 10 per cent down payment. The telling thing is the loan-to-income ratio. With average home prices in Vancouver having increased by some 40 per cent last year, and incomes staying flat, there are more mortgages with higher, riskier ratios, even though there are new lending requirements that have dampened demand for those type of mortgages.

Some borrowers who already have little wiggle room left to cover costs outside of housing will struggle to keep up when rates increase the cost of their monthly mortgage payments.

ATM MACHINE 

Soaring home prices have made homeowners feel wealthier and they have been borrowing against the hefty paper values of their homes for everything from vacations to renovations. The cost of using their homes like an ATM machine through lines of credit will also go up with the prime rate increase, and this could chill some discretionary spending.

ON THE POSITIVE SIDE

In what’s seen as a sign of the economy’s health, the Canadian dollar moved to near 79 cents US after the rate hike, closing above 78 cents US for the first time since August 2016.

CREDIT COUNSELLORS SAY

This quarter point rate hike may not make a big difference to many people right now, but the message it sends should. It’s the beginning of what could be several more increases in the next year.

“As much as possible, people should pay down debt. We all have debt, whether it’s $500 on a credit card or thousands on a line of credit. Develop a plan that isn’t about making the minimum payment, but get it paid off, whether it’s a plan for four or five years or ten years,” says Gary Tymoschuk, New Westminster-based vice-president of the Credit Counselling Society.

“If you are already going from paycheque to paycheque, with nothing to spare, and then you have to take your car into the shop and spend $500 and it throws your financial situation out of whack, then you will feel this (rate) hike and need to tweak your spending.”

© 2017 Postmedia Network Inc.

Belpark condos high on functionality

Mary Frances Hill
The Province

Belpark

What: A 120-home development of three buildings just east of Cambie Street on West 59th Avenue

Where: 375 West 59th Ave., Vancouver

Residence sizes and prices: Two-to-four-bedroom homes, 1,212 and 2,312 square feet, starting at $1,899,900

Builder and developer: Intracorp

Sales centre address: 660 West 41st Ave (Oakridge Mall)

Hours: noon — 5 p.m., Sat — Thurs

For some home-hunters looking to downsize from a large single-family house, the smaller amount of space can present issues. This presents a challenge to developers, architects and designers to create condo interiors that are so functional, residents will feel they’re in a home that’s much more spacious than its actual square footage.

“For many of our downsizer buyers, the frame of reference for what one can get out of 1,200 square feet is based on the functionality experienced in their early homeownership years,” says Barrett Sprowson, vice-president of sales and marketing at Intracorp, the developer of Belpark, a community of three buildings planned for the Cambie corridor.

“I find many of them are blown away by the livability of a current condo or apartment that is spacious and functional at 1,200 square feet.”

 

Sprowson points to the plans for a 1,640-square-foot suite at Belpark, which includes a five-piece bathroom. Its sliding entry door and layout is wide and shallow, giving it the feel of a more spacious and luxurious room; a wall-hung toilet and built-in storage in the shower and bath area also save space, he says. Two bedrooms, a walk-in pantry space, a powder room, a master with a walk-in closet and a laundry room that fits appliances side by side offers “a tremendous amount of functionality in a reasonably sized area,” adds Sprowson.

Large doors from the open-concept living space to the patio offers a seamless transition from inside to outside.

Visitors in the new Belpark display suites will be drawn to Trepp Design Inc.’s choice of finishes, particularly to the way they bring drama to the functional practicality of the layout. In the master ensuites and bathrooms, crisp white ceramic wall tile allows the feature walls to shine.  The result is one of “drama and quiet visual impact,” says Scott Trepp, principal of Trepp Design, which worked on the interior design.

Trepp has installed specialty marble slab material to contrast with lacquer cabinetry. The kitchen and ensuite both boast a black marble accent piece, which makes an impact in different ways: in the bathroom, it complements a subdued look, while in the kitchen, it adds some drama against the grey hues and white appliances.
“Combined with some strategic lighting, the backsplash becomes the real feature of the kitchen and helps to anchor it within the open living and dining areas,” Trepp says.

© 2017 Postmedia Network Inc

Canadian Real Estate Wealth

The British Columbia Real Estate Association says June home sales fell short of record levels set last year but demand remains well above average.

The association says 11,671 homes sold in June, down 9.6 per cent from the same period in 2016.

The total amount of money changing hands was $8.47 billion, a 5.6 per cent dip compared to the year earlier.

The average price of a home continues to climb, nudging $726,000 last month, a jump of 4.4 per cent over June 2016.

Association economist Brendon Ogmudson says the health of the B.C. housing market is supported by a strong provincial economy and vigorous job growth.

He says the lack of homes for sale is responsible for continuing increases in property prices.

“Supply remains a challenge, which means most areas are seeing tight market conditions and significant upward pressure on prices,” Ogmudson says in a news release.

Figures from the real estate association show when 2016 is taken out of the mix, residential sales in B.C. continue to rival the heights of the 2015 housing market, which was also well above the 10-year average for home sales.

Copyright © 2017 Key Media Pty Ltd

Canadian Real Estate Wealth

Three of Canada’s biggest banks are boosting their prime lending rates by 25 basis points, following an interest rate hike from the central bank.

Royal Bank of Canada (TSX:RY), the Bank of Montreal (TSX:BMO) and TD Bank (TSX:TD) all announced Wednesday they are increasing their prime rates to 2.95 per cent from 2.7 per cent, effective Thursday.

The prime lending rate is the rate that banks use to set interest rates for variable-rate mortgages and other loans.

The moves comes after the Bank of Canada raised its key interest rate for the first time in seven years on Wednesday to 0.75 per cent from 0.5 per cent.

Copyright © 2017 Key Media Pty Ltd

Justin da Rosa
Canadian Real Estate Wealth

The Central Bank raised its new target for the overnight rate to ¾% Wednesday, citing a confident financial outlook and above-potential growth.

This despite softened inflation, which the bank judges to be temporary.

“Governing Council judges that the current outlook warrants today’s withdrawal of some of the monetary policy stimulus in the economy,” the Bank said. “Future adjustments to the target for the overnight rate will be guided by incoming data as they inform the Bank’s inflation outlook, keeping in mind continued uncertainty and financial system vulnerabilities.”

The BoC estimates real GDP growth to moderate from 2.8% in 2017 to 2% in 2018 and 1.6% in 2019.

“Canada’s economy has been robust, fuelled by household spending. As a result, a significant amount of economic slack has been absorbed. The very strong growth of the first quarter is expected to moderate over the balance of the year, but remain above potential,” it said. “Growth is broadening across industries and regions and therefore becoming more sustainable. As the adjustment to lower oil prices is largely complete, both the goods and services sectors are expanding.

“Household spending will likely remain solid in the months ahead, supported by rising employment and wages, but its pace is expected to slow over the projection horizon,” the Bank continued. “At the same time, exports should make an increasing contribution to GDP growth. Business investment should also add to growth, a view supported by the most recent Business Outlook Survey.”

The Bank also cited strengthening global economy and a US economy that is solidly growing as factors for raising its rate.

Europe is also experiencing above-potential growth.

However, geopolitical uncertainty and softened world oil prices remain concerns.

Copyright © 2017 Key Media Pty Ltd

Steve Randall
Canadian Real Estate Wealth

The stress tests on mortgages, introduced last fall by the federal government, is pushing some homebuyers into uninsured lending options.

That’s the warning from Mortgage Professionals Canada which says that while the stress tests are a good idea they are based on a 4.64 per cent rate, far higher than the market rates.

“We agree with a mortgage stress test but it should be reflective of more realistic future interest rates so Canadians can continue to have access to affordable homeownership,” Paul Taylor, President and CEO of Mortgage Professionals Canada. “Modifying the criterial has a more realistic chance of improving homeownership for consumers.”   

He added that the tests mean that some consumers are opting for loans which are uninsured and often at higher interest rates, increasing the debt load and risk for some of the most vulnerable borrowers.

In a survey, MPC found that 48 per cent of borrowers would have a downpayment below 20 per cent, triggering a stress test; of these a fifth would not be able to secure required financing.

Those consumers would then either opt for a lowest priced home, delay their purchase or increase their downpayment from the RRSP (31 per cent), get help from family/friends (30 per cent) or financial institutions (16 per cent).

The association has also polled consumers on their view of the current housing market and found measured optimism with most considering mortgages to be ‘good debt’.

“Even in the pressured housing markets of Toronto and Vancouver, personal circumstances, rather than a sense of urgency, are influencing purchasing decisions. The significant surge in demand for new homes in Toronto in the early spring was an aberration. Fortunately, it was short lived,” said Taylor.

The poll shows that first-time buyers are aware of the need to ensure a buffer in their finances to cope with future expenses.

Copyright © 2017 Key Media Pty Ltd

 

Canadian Real Estate Wealth

Canada Mortgage and Housing Corp. says the annual pace of housing starts in Canada picked up in June.

The seasonally adjusted annual rate of housing starts in June came in at 212,695 units, up from 194,955 units in May.

Economists had expected tha annual rate to come in at 200,000, according to Thomson Reuters.

The overall increase came as the pace of urban starts increased by 9.6 per cent to 194,773 units. Multi-unit urban starts increased by 9.4 per cent to 127,944, while single-detached urban starts increased by 10.1 per cent to 66,829.

Rural starts were estimated at a seasonally adjusted annual rate of 17,922 units.

The six-month moving average of the monthly seasonally adjusted annual rates increased to 215,459 in compared with 214,570 in May.

Copyright © 2017 Key Media Pty Ltd

Ephraim Vecina
Canadian Real Estate Wealth

In its latest analysis, real estate platform Point2 Homes has drawn out a list of the most expensive residential properties for sale in Canada, in what is shaping up to be proof that the luxury home segment is not slowing down any time soon.

Using data culled from the Point2 Homes database as well as brokerages across the country, the study found that the Belmont Estate in Vancouver currently holds the title of the priciest home in all of Canada, going for a whopping $63 million.

“Situated on 1.28 acres, the 21,977 square foot mansion is the family home of Canadian philanthropists Mr. and Mrs. Joseph and Rosalie Segal,” Point2 Homes said of the home, which comes with 5 bedrooms and 12 baths.

In Ontario, a 4-acre estate in 68 The Bridle Path is selling for $35 million. Furnished with 10 bedrooms and 4 baths, “This landmark French chateau prides itself on its extravagant 2-story ballroom, a 50-foot granite and tile pool, and it also showcases an exquisite collection of gilt bronze chandeliers and European hand-carved marble mantles.”

Meanwhile, a $30-million gem in Alberta stands proud as Calgary’s premier purchase for horse aficionados. The Kestrel Ridge Farm comes with 6 bedrooms and 5 baths, and “this world-class equestrian estate was especially designed to accommodate national horse shows and dressage as well as many fundraiser events dedicated to young, aspiring riders. Besides top-of-the-line amenities in terms of stable care, boarding and training facilities are available, while enjoying the Grand Prix-sized indoor arena.”

Visit the portal to view the list of the most expensive homes in Canada as of early July 2017.

Copyright © 2017 Key Media Pty Ltd

Ephraim Vecina
Canadian Real Estate Wealth

Royal Bank of Canada has increased the interest rates on its fixed-term mortgage products.

RBC’s mortgage rates were all boosted by 20 basis points, up to 2.54 per cent (two-year rate), while 2.64 per cent (three-year rate), and 2.84 per cent (five-year rate). Said rates are for products with amortization periods not exceeding 25 years.

The rise came amid rising bond yields and enduring expectations that Canada’s central bank will hike its benchmark interest rate, which currently stands at 0.5 per cent. Should the Bank of Canada push through with the increase on Wednesday (July 12), it will be the first such movement in 7 years.

Manulife Asset Management senior economist Frances Donald told CBC News that the move by RBC is “another signal that economic and market agents are preparing for a rate hike next Wednesday… It also opens the door to a Bank of Canada rate hike because it implies that the economy is already going to absorb higher interest rates via the banks themselves.”

“We import higher rates via our bond curve from the United States, and the more we see higher rates around the rest of the world, the more the costs are going to rise for Canadian banks as well,” she explained, alluding to the recent boost in the U.S. Federal Reserve’s rates. More hikes are anticipated to come this year.

“We are clearly in the beginnings of a tightening cycle and these are not just influences from the Bank of Canada but from global sources as well.”

Copyright © 2017 Key Media Pty Ltd