Friday Mortgage Round Up: October 19th, 2012

The latest lowdown on the mortgage marketTREB’s Mid-October Resale Figures

Toronto Real Estate Board (TREB) released their mid-month resale figures this week, comparing the first 14 days of October ‘12 to October ‘11Year-over-year (YOY) sales across all areas (416, 905 and GTA collectively) have decreased, while the average price and number of listings have both increased. 

The largest drop in sales was seen in the condo apartment and semi-detached categories, dropping 20 per cent and 19 per cent respectively, while the detached and semi-detached styles experienced the greatest price increase since last year at 6 per cent and 5 per cent respectively.  It is interesting to see that although the YOY change for condo apartment prices has dropped by only two per cent (effectively making them more attractive to potential buyers) sales have suffered disproportionately – dropping a whopping 20 per cent throughout the GTA.  This suggests that purchase plans have been put on hold due to the tightening of the lending mortgage guidelines.

How has October 1-14th faired when compared to the first 14 days of September?  It looks as though parents were doing a little back to school shopping of their own.  Prices pretty much stayed the same, while sales flourished in October and new listings decreased across the board.

Are you a condo owner in Toronto?  You might be interested in checking out the GTA Realtors Release Condo Market Report which breaks down five different regions in Toronto and reports on sales and prices.  Overall, third quarter TREB sales dropped over 20 per cent year over year while prices pretty much stayed the same.

152 Per Cent Debt-to-Income Ratio? Think Again!

Statistics Canada adopted a major revision to the national balance sheets and the method used to calculate household net worth to ensure that Canada is more in line with international accounting standards.  One amendment included removing non-profits from the “household” category to get a better representation of family finances.  The net effect has proven to increase our already weighted debt-to-income ratio over 6.5 per cent and sit at a whopping 162 per cent!

RBC’s Chief Economist Craig Wright told CTV news in an interview that he hopes the debt-to-income ratios will stabilize and this latest figure shouldn’t cause anyone to sound the alarm.  Some are concerned with how this new evaluation paired with a drop in home sales by 15.1 per cent from a year ago sounds much too familiar ( a.k.a like the U.S.).  However we need to keep in mind that our sub-prime market is nothing like that of the states, we’ve had some new rules come in which have and will continue to have impacts on our housing numbers and therefore we will continue to experience a slow and steady stabilization.

While this new math has no direct cause-and-effect influence on the housing market, it certainly broadens Canada’s exposure to risk and puts us in a more vulnerable position should a sudden loss of income and/or a downturn in the housing market rear its ugly head.

Emili and CMHC

Background: Emili is the AVM (Automated Valuation Model) that CMHC uses to asses the risk of property valuations on mortgage deals that pass through their system.  However, some appraisers are worried that the database is flawed as it largely relies on the recent sale prices of nearby homes to gauge the value of property at hand.

The database does not take into account the property’s market value, rather merely ensures that it fits within the band of said property values within that community.  Consider the butterfly effect of a heated bidding war; the end result is an inflated sale price that is much above what the market value and asking price is.

This is great news to the seller – they made more than originally anticipated!  Huge for the real estate agent – they operate on a commission.  Heck, even a good news story for the excited buyer who now has home!  Oh, and don’t forget about the commissioned broker who has financed a larger mortgage amount.  It might even be good news for the community who is slowly (and falsely) becoming more up-scale. Oh la-la!

But consider the next listing on the block… “Well, I was thinking of listing at $600,000 but the Patterson’s down the street sold for $675,000 and our property is definitely comparable.  Let’s list for $670,000 and see what happens”.   The deal is submitted at CMHC and Emili approves it as it is within the community’s band.  This trend continues and continues until all of a sudden we wake up to an inflated market.

I can appreciate the raised concerns of some industry people. However, lenders need to do their homework too and in most cases – I think that they do! In my banking days, I have to admit I was never worried about receiving an approval on a property from CMHC.  Rather, I was worried about the underwriting team coming back with a drive-by or full appraisal request (and on the client’s dollar). In fact, I cannot think of a time when CMHC requested one at all.  So perhaps Emili needs to be revisited, but the lenders too need to use their heads and cover their assets. Week in Review

Quite a yawn of a week again for rate changes as there is no long list of changes to the best mortgage rates page to report.  The only said change was to the 3 year variable rate which decreased a quarter of a percent and sits at prime – 0.35 (2.65 per cent).


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